Fighting has raged across Myanmar's northern Shan state since October, when the so-called "Three Brotherhood Alliance" of ethnic minority groups launched an offensive against the military.
The alliance has seized several towns and border hubs vital for trade with China in what analysts say is the biggest military challenge to the junta since it seized power in 2021.
The Myanmar National Democratic Alliance Army (MNDAA), one member of the brotherhood alliance, has vowed to recapture Laukkai town, located in a district bordering China that is run by a military-aligned militia and notorious for gambling, prostitution and online scams.
"The conflicts in Laukkai district of Kokang, northern Myanmar continue, and safety risks have escalated for people stranded there," the embassy said on WeChat.
"The Chinese Embassy in Myanmar once again reminds Chinese citizens in Laukkai district to evacuate as soon as possible."
Media affiliated with the MNDAA said this week that Myanmar's junta had carried out airstrikes in the self-administered Kokang region that surrounds Laukkai and shelled parts of the town.
AFP has contacted an MNDAA spokesperson for comment.
Earlier this month, Beijing said it had mediated talks between the military and the allied ethnic armed groups and reached an agreement for a "temporary ceasefire".
But clashes have continued in parts of Shan state, with another member of the alliance, the Ta'ang National Liberation Army, claiming to have captured two more towns in recent days.
China's foreign ministry on Thursday described the situation in Kokang as "grim and complicated".
"China has always believed that maintaining momentum for a ceasefire and peace talks is in the interests of all relevant parties in Myanmar," foreign ministry spokeswoman Mao Ning said.
Analysts say Beijing maintains ties with ethnic armed groups in northern Myanmar, some of whom share close ethnic and cultural links with China and use Chinese currency and phone networks in the territory they control.
Beijing is also a major arms supplier and ally of the junta, but relations have been strained in recent months over the junta's failure to crack down on online scam compounds in Myanmar that Beijing says target Chinese citizens.
Protesters gathered for a rare demonstration in Yangon last month to accuse China of backing the ethnic minority alliance, in what analysts say was a move sanctioned by junta authorities.
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