US Secretary of State Mike Pompeo yesterday lifted "self-imposed restrictions" regulating American diplomats, service members and other officials' interactions with Taiwanese counterparts.
The move will not go down well with Beijing, which regards Taiwan as a renegade province and one of its greatest sensitivities.
It also presents incoming president Joe Biden with a new forward line on Taiwan, on which he will find it difficult to backpedal without appearing soft on China - a label that President Donald Trump has tried to stick on him.
"Taiwan is a vibrant democracy and reliable partner of the United States, and yet for several decades, the State Department has created complex internal restrictions to regulate our diplomats, service members and other officials' interactions with their Taiwanese counterparts," Mr Pompeo said.
"The United States government took these actions unilaterally, in an attempt to appease the communist regime in Beijing. No more."
The US still maintains the "one-China" policy which does not recognise Taiwan as an independent country. That has entailed a variety of open subterfuges as the US does engage with Taiwan.
But the latest move means that Taiwanese and US officials no longer need to maintain the facade of non-official ties - meeting in hotels, for instance, rather than at the US State Department; or at the historic, 133-year-old Twin Oaks, a Georgian mansion in north-west Washington which is the Taipei Economic and Cultural Representative Office. The office is Taiwan's de facto embassy in the US.
Taiwan welcomed the move. Foreign Minister Joseph Wu said: "The closer partnership between Taiwan and the US is firmly based on our shared values, common interests and unshakeable belief in freedom and democracy."
Taiwan has been trying for a long time to get the US to change the restrictions on interactions. The move comes with 10 days to go until the handover to Mr Biden in Washington.
The Biden administration could accept the new policy, revert to the old or revisit the entire issue, Ms Bonnie Glaser, senior adviser for Asia and director of the China Power Project at the Centre for Strategic and International Studies in Washington, told The Straits Times. But "the Biden administration will rightly be unhappy that a policy decision like this was made in the final days of the Trump administration", she said.
Meanwhile, the US Ambassador to the United Nations Kelly Craft is due to visit Taiwan from Wednesday to Friday, just days before Mr Biden's inauguration on Jan 20.
Mr Pompeo called Taiwan a "reliable partner and vibrant democracy that has flourished despite the Chinese Communist Party's efforts to undermine its great success". This confirmed China policy analysts' view that the Trump administration sees Taiwan as an issue it can use against Beijing.
Responding to Ms Craft's upcoming trip, China's UN mission warned that "whoever plays with fire will burn himself".
Dr Robert Manning, resident senior fellow at the Washington think-tank Atlantic Council, told ST: "Much of this seems mindless poking the dragon to show how much we love Taiwan, usually with exactly the opposite effect - resulting in Beijing feeling compelled to respond in kind by putting more pressure on Taiwan."
Mr Biden is expected to take a less openly adversarial approach to China than the Trump administration, looking for ways to coexist. The US-China relationship has plunged to the lowest level in decades and the situation is already being called a new Cold War.
"It does reflect the (current administration) trying to make things as difficult as possible for Biden to brake the free fall in US-China relations and put a floor under it, and begin to manage competition and more clearly define the terms of it," said Dr Manning.