The two pilots of a China United Airlines (CUA) flight fought in the cockpit in June, the official news agency Xinhua reported.
It said China's aviation authority has punished CUA, including imposing a 10 per cent cut to the airline's flight hours starting today.
China United Airlines was told it could not launch any new air routes or charter flights by the civil aviation authority after a string of safety violations since June.
Details of the incident, however, are sketchy. For example, unclear how many people were onboard when the incident occurred, the report said.
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CUA on Monday played down the incident, saying the pilots had misunderstood each other and it was just "some physical contact", but did not escalate into a fight.
Those involved in the incident have been grounded for six months, the airline added.
According to the CAAC statement, CUA was punished due to a series of safety incidents this year, including three incidents in June and July that "seriously violated regulations."
Unruly passenger behaviour regularly makes headlines in Chinese media as air travel booms, with unfamiliar or drunken travellers even sometimes trying to open doors in mid-flight.
In July, a passenger tried to start a fire on board a Shenzhen Airlines flight but was restrained by cabin crew and passengers.
In January, police detained 25 irate passengers who opened aircraft emergency exit doors before take-off after their flight was delayed by snow.
In December last year, a budget flight from Thailand to China was forced to return to Bangkok after a Chinese passenger threw hot water at a cabin attendant.
Air travelers on domestic and international flights hit 392 million, up 10.7 per cent year on year, the CAAC said in July.
The industry generated operation revenue of 619 billion yuan (101 billion US dollars), up 8.2 per cent. Profits climbed 14 per cent to reach 28.9 billion yuan, 3.5 billion yuan more than the previous year.