The case is the most serious Taiwanese spy scandal in decades and could make the U.S. reluctant to share military technology with Taiwan.
Defense Ministry spokesman Yu Sy-tue said Lo Hsieh-che, who headed the army command's communications and information office, was recruited by the Chinese as a spy in 2004 when he was a military attache based overseas. Yu declined to provide additional details, saying the military was investigating the case.
Local media said Lo was based in Thailand before he returned to Taiwan in 2006. Citing unidentified sources, the Liberty Times said Lo passed classified information to his Chinese contact and their communications were intercepted by Asian-based U.S. intelligence officials.
News reports said Lo was believed to have leaked information about an integrated command, communications and control network known as the Bo Sheng project, which Taiwan began establishing 10 years ago. The system's infrastructure is provided by the U.S.
Bo Sheng - which means "broad victory" - is an air defense system designed to help Taiwan defend itself against a possible Chinese attack.
Eric Shih, an editor with Taiwan-based Defense International, said Lo's position would have given him access to Bo Sheng information.
"The Chinese are believed to be most interested in the sophisticated command system," he said. "They wish to gain knowledge about it so they can design their own or interfere and undermine the Taiwanese system."
Shih was not sure what Lo's alleged role may have been, but suggested that the U.S. might have foreseen the possibility that the system could become compromised and taken steps to prevent the Taiwanese from accessing the network's hardware.
Still, he said, "the U.S. must be very unhappy about the leakage. It would affect their willingness to sell us weapons."
Arthur Ding, a defense expert with Taiwan's Institute for International Relations, said Lo might have had access to the military's optical fiber-based communication system - a critical part of its command network. If this information was indeed compromised, he said, China could easily disrupt the Bo Sheng system.
"The U.S. must now be worrying about the reliability of Taiwanese officers," he said.
Lo is the most senior Taiwanese officer accused of spying for China since the 1960s, when a vice defense minister was arrested amid an island-wide crackdown on Communist agents.
Taiwan and China split amid civil war in 1949. China claims the self-ruled island as part of its own territory, and both sides have long engaged in espionage against each other.
Since taking office in 2008, Taiwanese President Ma Ying-jeou has sought to engage China economically, which has helped reduce tensions across the 100-mile (160-kilometer ) -wide Taiwan Strait to the lowest point in decades.
Opposition lawmakers charged that the late detection of Lo's alleged connection with China had revealed a security loophole despite the military's repeated pledge not to let down its guard against the mainland's Communist government.
They warned that despite the recent improvement in relations, Beijing may have intensified its spying against Taiwan.