Google has stopped censoring its search results in China and started to re-direct Chinese users to an uncensored Hong-Kong based site.
Chinese state officials have been quick to criticise the move, saying it was 'totally wrong' and in violation of Google's promise to abide by Chinese law.
Beijing's firewalls are already censoring sensitive searches within mainland China.
Major political upheaval
Google has explained the move in detail on its blog.
For its part, China is clearly not happy with the latest moves by Google, with Chinese foreign ministry spokesman Qin Gang saying that the move was an isolated act by a commercial company and that it should not affect China-US ties "unless politicised" by others.
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A leading (and un-named) Chinese official responsible for online affairs told the Chinese state news agency Xinhua: "Google has violated its written promise it made when entering the Chinese market by stopping filtering its searching service and blaming China in insinuation for alleged hacker attacks.
"This is totally wrong. We're uncompromisingly opposed to the politicisation of commercial issues, and express our discontent and indignation to Google for its unreasonable accusations and conducts."
However, make no mistake, while Chinese officials are already playing this down as a 'minor commercial matter', this is a major political upheaval and is sure to have significant repercussions, with one of the internet's leading companies refusing to do business in China, claiming 'free speech' issues as its reason for pulling out of this huge and potentially massively lucrative market.
Don't be evil
Chinese IT specialist Chen Yafei told Reuters: "Any company entering China should abide by Chinese laws… Google has its own credos. The fighting between Google and the Chinese government is their own business. Chinese internet users will have no regrets if Google withdraws."
Google's Legal Officer, David Drummond noted that the company thought that providing uncensored searches via Hong Kong-based google.com.hk website was "entirely legal" and would provide "access to information for people in China".
"We very much hope that the Chinese government respects our decision, though we are well aware that it could at any time block access to our services," the Google rep wrote in a blog post.
Analysts said that initially Google's prospects would not be dented by shutting down Google.cn as it is responsible, at most, for 2 per cent of its annual $24bn (£15.9bn) revenue.
China operates one of the most sophisticated and wide-reaching censorship systems in the world.
Thousands of police officers are employed to monitor web activity and many automated systems watch blogs, chat rooms and other sites to ensure that banned subjects, such as Tiananmen Square, are not discussed.