The victim was identified as Qiu Xiang, believed to be about 35 years old, from a nunnery in Dawu county in southwest China's Sichuan province, which has a large Tibetan community, the official Xinhua news agency reported.
She set herself on fire about 12:50 p.m. Thursday at a road crossing in the county.
The news agency, quoting a local official, said an initial police investigation showed the incident was "masterminded and instigated by the Dalai Lama clique."
The Dalai Lama -- who has lived in India in exile since fleeing Tibet in 1959 after a failed uprising against Chinese Communist rule -- has been accused several times by the Chinese government of seeking independence for Tibet, although he has said he only wants greater autonomy for Tibetans.
The New York Times reported Qiu Xiang became the second nun to die in protest of Chinese rule.
Ten other people, some of whom have died, have taken to self-immolation in recent months in the Ganzi area in the province, home to several Buddhist monasteries.
The Times reported that during her self-immolation Qiu called for religious freedom and the return of the Dalai Lama, said Kate Saunders of the advocacy group International Campaign for Tibet, quoting a local Tibetan.
Tibetan exile groups say scores of monks and nuns have been detained by Chinese authorities since the protests began in June.