Beijing and Washington should have a dialogue on human rights issue but "based on equality and mutual respect" and not use "the pretext of human rights issue" for interfering in China's internal affairs, Foreign Ministry spokesman Hong Lei said.
He said the United States should reflect more on its own human rights problems and not be a "preacher" of human rights.
"The United States should stop interfering in other countries' internal affairs with their human rights report. But we are firmly against interfering in our internal affairs under the pretext of human rights issues," Hong said.
The Chinese government attaches great importance to protecting human rights, he said, adding that China is increasing its access to democratic processes and strengthening its legal system to protect individual human rights.
All ethnic groups in China enjoy extensive freedom and rights, Hong said.
However, the State Department report criticizes the Chinese government for restricting human rights "as it takes additional steps to rein in civil society, particularly organizations and individuals involved in rights advocacy and public interest issues and increased attempts to limit freedom of speech and to control the press, the Internet and Internet access."
Political activists and public interest lawyers are targeted with extralegal measures including enforced disappearance, so-called soft detention and strict house arrest, including house arrest of family members", to stop them from airing their grievances public," the State Department claimed.
"Individuals and groups, especially those seen as politically sensitive by the government, continued to face tight restrictions on their freedom to assemble, practice religion and travel," the report said.
The Chinese government "continued its severe cultural and religious repression of ethnic minorities in Xinjiang Uighur Autonomous Region and Tibetan areas. Abuses peaked around high-profile events, such as the awarding of the Nobel Peace Prize to democracy activist Liu Xiaobo and sensitive anniversaries."
Human rights issues in China have been the focus of continuing diplomatic spats with the United States since the communists defeated the nationalist forces in 1949 and mainland China became a one-party state. But Beijing reserved some of its harshest words for Washington last December over the Nobel Prize for Liu.
The U.S. House of Representatives voted 401-1 for a resolution congratulating Liu on winning the Peace Prize.
U.S. legislators should "change their rude and arrogant attitude" toward China over the Nobel Peace Prize issue, a Chinese foreign ministry spokeswoman Jiang Yu said at the time. Liu was a "convicted Chinese criminal" and more than 100 countries and international organizations support China on the issue.
"The so-called resolution approved by the U.S. House of Representatives disregards facts and distorts truth and is a flagrant interference in China's internal affairs," Jiang said. "We urge relevant U.S. lawmakers to stop their wrongdoing on this issue, change their arrogant and rude attitude and show due respect for the Chinese people and China's judicial sovereignty."
Liu was sentenced in December 2009 to 11 years in prison for allegedly engaging in activities aimed at overthrowing the government. The Obama administration issued a statement in December, after Liu was awarded the Peace Prize, that his trial was "uncharacteristic of a great country" and his case is "clearly a political trial that will likely lead to a political conviction."
During a state visit to the United States in January, Chinese President Hu Jintao said China is committed to protection and promotion of human rights and acknowledged that more needed to be done.
"China recognizes and respects the universality of human rights," said Hu, addressing a news conference with U.S. President Barack Obama in Washington. "And at the same time, we do believe that we also need to take into account the different national circumstances when it comes to the universal value of human rights.
"We will continue our efforts to improve the living standard of the Chinese people and will continue our efforts to promote democracy and the rule of law in our country."
Earlier this month Ai Weiwei, a well-known Chinese artist and government critic, was detained by Beijing police.
Ai, 53, is the designer of the Olympic stadium in Beijing. He was stopped at the city's airport as just before boarding a flight to Hong Kong and hasn't been seen since. Police also briefly detained eight of his employees working at his Beijing studio.
The State Department report also comes down heavily on Iran, Iraq, Myanmar, North Korea, the Ivory Coast, Zimbabwe, Ukraine, Russia and Belarus for alleged human rights violations.