China's activities, notably the expansion of its nuclear weapons, have put the "rules-based international order" at jeopardy, according to Nato.
It was the first time Nato had put China at the top of its priority list.
China responded by stating that its defense policy is "defensive in nature" and urging Nato to "dedicate more of its energies to promote dialogue."
In a statement, China's envoy to the European Union said, "Our pursuit of defense and military modernization is justifiable, rational, open, and transparent."
It went on to say that Nato should take a "rational" approach to China's development and "avoid using China's legitimate interests and rights as an excuse to influence bloc politics, foment conflict, and fuel geopolitical competition."
On Monday, Nato issued a statement at the conclusion of a one-day conference in Brussels.
It was Joe Biden's first NATO meeting as President of the United States.
Russia is seen as a major danger by the formidable political and military alliance of 30 European and North American countries. On Wednesday, Mr. Biden will meet with Russian President Vladimir Putin in Geneva.
"We're not entering a new Cold War," Nato Secretary-General Jens Stoltenberg told reporters. "China is not our rival, not our enemy."
"We need to face the concerns that the emergence of China poses to our security as an alliance," he continued.
China is one of the world's most powerful military and economic countries, with the Communist Party controlling politics, daily life, and most of society.
The Chinese military now boasts the world's largest armed forces, with over two million active service members.
Nato has grown increasingly concerned about China's expanding military capabilities, which it sees as a threat to its members' security and democratic ideals.
China's efforts in Africa, where it has established army bases, have also become a source of concern for the alliance in recent years.
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