The Indian government is blocking purchases of telecoms equipment from Chinese vendors on national security grounds, ratcheting up trade tensions between Asia's fastest-growing large economies.

The practice has prompted complaints from Beijing and is causing havoc for mobile operators in India, which need enormous amounts of equipment to sustain an industry that is adding 20m new users a month.

“Proposals for procurement of equipment from Chinese original equipment manufacturing vendors have not been recommended due to security concerns,” the Department of Telecommunications wrote this week in correspondence to the Prime Minister's Office seen by the Financial Times. “Therefore, the proposals from the service providers for purchase of Chinese equipment is turned down.”

India's mobile market has become an important source of revenue for Chinese companies, accounting for about 11 per cent of 2008 turnover at Shenzhen-based Huawei Technologies, one of the world's leading telecoms equipment makers.

But China's growing trade surplus with India – about $16bn last year – is leading to tensions, with Indian companies complaining that the market is being flooded with cheaper Chinese goods.

New Delhi has long been accused of blocking the purchase of some Chinese telecoms equipment due to fears Beijing might embed spying devices in its networks.

Previously, this practice was thought to be mostly limited to equipment to be installed in India's disputed border regions with Pakistan and China. But in December, the Department of Telecommunications amended its licence conditions for mobile service providers, requiring them to submit all plans for procurement of telecoms equipment from foreign vendors for screening for “security clearance”.

Though the December amendment did not single out China, in practice, security agencies have been blocking applications involving Chinese vendors.

Indian department officials were unavailable for comment last night.

Chinese officials were also unavailable for comment. But the correspondence seen by the FT mentioned a request from the Chinese embassy in New Delhi for information on the amendment.

ZTE, China's second-largest network equipment maker and the fifth-largest worldwide with $750m of turnover in India, said yesterday that it was still investigating the situation.

“This is apparently not normal commercial behaviour but something related to political factors, and it is not appropriate for us to comment on political issues,” said ZTE.

India is the world's second-largest mobile market after China with 584m subscribers.