Honduras President Xiomara Castro announced on Twitter that her government plans to establish diplomatic relations with China instructing her foreign affairs minister to start negotiations.
She stated that her intention is "to expand frontiers freely in concert with the nations of the world."
The announcement drew a strong response from Taipei, which is scrambling for international support under increasing threats from China.
Taiwan's ministry of foreign affairs expressed "serious concerns" to the Honduran government and requested it "to consider carefully and not fall into China's trap or make wrong decisions."
China welcomed the decision with a foreign ministry spokesperson stating that it hoped this would help both countries expand cooperation in various fields.
Honduras, which has been a formal ally of Taiwan, indicated a change in its diplomatic views by seeking to establish ties with China.
Taiwan's Foreign Minister Joseph Wu stated that "China's continued military threats, diplomatic suppression, and other forms of coercion undermine the status quo" but emphasized that Taiwan will work with the international community to uphold regional peace and stability.