"The continued listing of the (Institute of Forensic Science) on the list was a barrier to achieving cooperation on stopping the trafficking of precursor chemicals" used to make the powerful synthetic opioid, State Department spokesman Matthew Miller told reporters.
Washington has previously described the IFS, which operates under the Chinese Ministry of Public Security, as complicit in human rights violations against China's Uyghur population. It was put on a sanctions list in 2020.
During an ongoing summit in San Francisco, Chinese President Xi Jinping on Wednesday promised to crack down on the production of the fentanyl ingredients in China as the drug continues to flood United States.
Beijing has described the IFS as essential to cracking down on precursor chemicals, which are often shipped to Mexico where they are then used to make fentanyl to be smuggled into the United States.
"When we evaluated the issue, and looked at all of the merits of delisting the IFS, ultimately we decided that given the steps China was going to take to take down precursor tracking, it was the appropriate step to take," Miller said.
"We have to make tough decisions in this administration. And the decision that we've made is that we looked at the potential of saving American lives by securing this cooperation," he added.
"It's not the end of the story. We're going to watch how China complies with the commitments that were made to us."
Cracking down on fentanyl trafficking was one of a number of agreements US President Joe Biden and Xi have reached while attending the Asia-Pacific Economic Cooperation summit in California, including restoring military-to-military links.
Nationwide, the United States saw a record of around 110,000 drug overdose deaths between March 2022 and March 2023, according to the Centers for Disease Control and Prevention (CDC). Fentanyl accounted for some two-thirds of them.
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