China had agreed to a "One Country, Two Systems" approach for Hong Kong before the territory was handed over from Britain in 1997.
But Beijing has clamped down since mass protests in 2019, with Hong Kong's opposition-free legislature in March passing an ordinance that carries life imprisonment for crimes including treason and insurrection.
Updating a business advisory first issued in 2021, the State Department and other US agencies warned of "new and heightened risks" for firms operating in Hong Kong.
"The vaguely defined nature of the law and previous government statements and actions raise questions about risks associated with routine activities," it said of the new Article 23 law.
Such routine activities could include research on government policies and maintaining connections with local officials, journalists and non-governmental organizations, it said.
The advisory also said differences were narrowing between Hong Kong and mainland China.
"Under similar laws to those recently enacted in Hong Kong, PRC authorities in mainland China appear to have broad discretion to deem a wide range of documents, data, statistics or materials to be state secrets and to detain and prosecute foreign nationals for alleged espionage," it said, using the acronym for China's official name.
More than 300 people have been arrested under an initial 2020 security law. According to the State Department, they include one US citizen.
Hong Kong's number two official Eric Chan said Saturday the US advisory was an attempt to suppress China's rise and that national security cases are treated fairly in court.
"The National Security Law has been enacted for a long time and we can all see that we have never groundlessly arrested any business people," Chan told reporters.
"(The US advisory) involves an element of intimidation, to scare away business people hoping to invest in Hong Kong. I don't think this ploy will succeed."
The United States has repeatedly warned that Beijing-led security regulations are putting at risk the openness that allowed Hong Kong to flourish as a trading hub.
Hong Kong leader John Lee has defended the new ordinance as a move to prevent violence following the mass demonstrations of 2019.
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