"All Chinese people of all ethnic groups and all regions are fully entitled to religious belief. The so-called report ignores facts," foreign ministry spokeswoman Hua Chunying said at a regular press briefing.
"We see that the United States is not a perfect country either. We urge the US to... Manage its own affairs," Hua added.
US Secretary of State Rex Tillerson pointed to China along with Bahrain, Iran, Pakistan, Saudi Arabia, Sudan and Turkey as he presented the State Department's annual report on Tuesday.
It cited a national security law that explicitly bans "cult organizations," which includes the Falun Gong, Buddhist-inspired groups and several Christian groups.
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A new government regulation in the northwestern Xinjiang region bans religious activity in schools and stipulates that parents or guardians who "organize, lure, or force minors into religious activities" may be reported to the police, the report said.
It also noted arrests and harassment of church leaders in eastern Zhejiang province, who have opposed a government campaign to remove crosses from churches.
China's officially atheist Communist authorities are wary of any organised movements outside their control, including religious ones, and analysts say controls over such groups have tightened under President Xi Jinping.
Chinese authorities had outlawed Falun Gong in July 1999, branding it an "evil cult".
Members claim that hundreds of followers have since been beaten and killed in labour camps, a charge the Chinese government denies.
Beijing says it "peacefully liberated" Tibet in 1951 and insists it has brought development to a previously backward region.
Several Tibetan monks have died in self-immolation protests in recent months, according to rights groups.