The Nauru government said it would no longer recognise Taiwan "as a separate country" but "rather as an inalienable part of China's territory".
China claims democratic, self-ruled Taiwan as its own territory and has vowed to one day seize it, by force if needed.
Nauru will "sever diplomatic relations" with Taiwan immediately and "no longer develop any official relations or official exchanges with Taiwan", the island state said in a presidential statement.
Following the switch, Taiwan's foreign ministry said it was ending diplomatic relations with Nauru "to safeguard our national dignity".
Nauru's decision will likely be seen as a major coup for Beijing -- it was one of the few countries left that officially recognised Taiwan on a diplomatic basis.
"This change is in no way intended to affect our existing warm relationships with other countries," the Nauru government statement said.
"Nauru remains a sovereign and independent nation and wants to maintain friendly relations with other countries."
Beijing welcomed Nauru's switch.
"China appreciates and welcomes the Nauru government's decision," a spokesperson for Beijing's foreign ministry said.
- Diplomatic 'step change' -
Beijing is "willing to open a new chapter" in ties with Nauru after its decision to diplomatically recognise only China, the spokesperson said.
Nauru -- population 12,500 -- is one of the world's smallest countries and lies about 4,000 kilometres (2,500 miles) northeast of Sydney.
Taiwan and China have engaged in a diplomatic tug-of-war to lure allies in the Pacific region, offering generous aid packages and assistance in agricultural and educational development.
Veteran politician David Adeang was elected Nauru's president in October last year.
Nauru's diplomatic move comes two days after voters in Taiwan elected a new president, Lai Ching-te, who is viewed by China as a dangerous separatist.
Massey University Pacific security expert Anna Powles said China would benefit by "shrinking Taiwan's diplomatic space".
"Nauru's decision to switch to China wasn't unexpected but it will certainly reverberate around the Pacific," she told AFP.
Nauru is the latest Pacific country to turn its back on a longstanding relationship with Taiwan.
In a shock announcement in 2019, Solomon Islands said it would officially recognise China.
That decision fuelled concern among Western allies that Beijing might seek to establish an increased military footprint in the strategically important Pacific region.
Only 12 states, including the Holy See, now fully recognise Taiwan.
In Africa, only Eswatini officially recognises Taiwan, while in Latin America, seven states have full diplomatic ties with the island, including Belize, Guatemala, Haiti and Paraguay.
Taiwan temporarily cut its 22-year diplomatic relationship with Nauru in July 2002.
But the two countries patched things up in 2005, when Nauru switched back to Taiwan.
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