The US has blocked the £880m sale of money transfer firm Moneygram to China's Ant Financial, the digital payments arm of Alibaba.
It is the highest profile Chinese deal to be rejected by Washington since Donald Trump came to power, BBC reports.
According to Moneygram and Ant Financial, regulators overseeing foreign investments in the US refused to support the takeover on the grounds that the geopolitical environment had "changed considerably" since the merger was announced last year.
The latest move is a blow to the ambitions of Alibaba's billionaire executive chairman Jack Ma, who had promised President Trump that he would create a million US jobs.
Alibaba, which owns Ant Financial, saw the US market as a way to expand overseas in the face of fierce domestic competition from the likes of Tencent's WeChat.
But in a joint statement, Ant Financial and Moneygram said they had abandoned the deal "following the inability of the companies to obtain the required approval for the transaction from the Committee on Foreign Investment in the US, despite extensive efforts to address the Committee's concerns,"
Reports suggest the committee had cited security concerns over the takeover.
The US has been toughening its stance on business dealings with China.
The country launched a formal review of China's intellectual property practices in October last year. US politicians and military leaders have also urged the administration to take a closer look at Chinese investments in America, particularly in the technology industry.
In September, the US blocked the $1.3bn sale of Lattice Semiconductor to Chines-backed Canyon Bridge Capital Partners, citing concerns over the "potential transfer" of intellectual property from Lattice.
Other deals that have failed to materialise due to US objections include China Oceanwide Holdings Group's $2.7bn purchase of US life insurer Genworth Financial, and Chinese buyout firm Orient Hontai Capital's $1.4bn acquisition of US mobile marketing firm AppLovin.