Canada accused China on Tuesday of hacking into the computers of its research and development arm, which partners with thousands of Canadians firms each year to roll out new technologies.
"Recently, the government of Canada, through the work of the Communications Security Establishment, detected and confirmed a cyber intrusion on the IT infrastructure of the National Research Council of Canada by a highly sophisticated Chinese state-sponsored actor," said a government statement.
The NRC's computers, Ottawa went on to say, have been isolated from the broader Canadian government network "as a precautionary measure."
New security infrastructure is also being built to try to prevent similar breaches, but that could take up to a year to complete, it added.
Foreign Affairs Minister John Baird meanwhile expressed Canada's outrage to his Chinese counterpart during a trip to Beijing.
The pair had a "full and frank exchange of views," Baird's spokesman Adam Hodge told AFP.
Areas of NRC scientific expertise include aerospace, astrophysics, energy and mining, health and medicine, ocean vessel engineering, and security and disruptive technologies.
China cyber-espionage has become a growing concern for many governments and companies, following several reports of breaches in recent years.
Hackers using servers traced to China previously penetrated computer systems at Canada's Finance Department and Treasury Board.
China has always denied any hacking involvement.
A 19-year-old Canadian man was arrested in April for allegedly stealing 900 Canadian taxpayers' data, which was made vulnerable by the "Heartbleed" bug.
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