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Chinese Foreign Minister Wang Yi said tension was rising on the Korean Peninsula as North Korea ignored international resolutions, firing missiles and developing nuclear weapons, while the US and South Korea continued "enormous scale" military exercises.
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He said the two sides were like "two accelerating trains coming toward each other with neither willing to give way".
China would try to flash the red lights to defuse a looming crisis, he told journalists in Beijing.
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China opposes a controversial missile defence shield that the US began to deploy in South Korea on Tuesday, a day after four missiles were fired by North Korea into the sea off Japan.
Mr Wang said China proposed North Korea halt its missile activity in return for the US halting large military exercises with South Korea. He said this would bring North Korea back to the negotiating table.
"Talks deserve another chance and peace is within our grasp, " he said.
Earlier the arrival in South Korea of the first components of a controversial US-backed missile defence shield has drawn a strong rebuke from China.
Just 24 hours after four ballistic missiles were test-fired by North Korea into the Japanese economic zone, the US military said it had delivered two mobile launchers and the first equipment for the Terminal High Altitude Area Defence (THAAD) to Osan Air Base outside Seoul.
The Chinese Foreign Ministry said on Tuesday the US and South Korea were on the "wrong road" and China would "resolutely take measures to defend China's security interests".
Mr Wang said China urged South Korea to "cease and desist, halt the THAAD deployment".
He warned the defence shield strategy with the US may backfire - "it may very well make the ROK [South Korea] less secure".
It was common knowledge the early warning radar in THAAD extended beyond Korea and therefore undermined Chinese security, he said.
"It's not the way neighbours should behave," he said.
It is expected the system could be operational as soon as July.
China earlier this week announced a defence budget of 1.3 per cent of GDP in 2017, representing slowing growth in military spending of 7 per cent this year.
The THAAD is designed to shoot down short to medium-range ballistic missiles from North Korea and has a range of 200 kilometres.
Analysts have said the system's powerful radar may be capable of monitoring Chinese missiles within China.
South Korean retailer Lotte has recently seen multiple stores in China closed down by local officials for fire safety breaches. Lotte has agreed to swap land in South Korea to allow a THAAD base to be built, but China has denied the closures were sanctions related to the THAAD.
Chinese authorities have also denied visas to South Korean pop stars who frequently perform on the mainland; rejected imports of South Korean cosmetics; and scrubbed at least five enormously popular South Korean TV shows from Chinese video streaming sites.
The US Pacific Command posted on Twitter that the THAAD delivery was part of its commitment to the US-South Korea alliance.
#THAAD deploys to the Korean Peninsula; this purely defensive system honors our alliance commitments to the #ROK. https://t.co/I4bPDh9wRt pic.twitter.com/apqqQkv6Ch
— U.S. Pacific Command (@PacificCommand) March 7, 2017
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