China's military has increased its presence in Taiwan's skies and waters in the past few years, conducting drills on a near-daily basis near the island nation.

Analysts say the US$11.1 billion package could narrow the scope of a meeting between US leader and Xi, even if the talk goes ahead.

Palau is a tiny Pacific nation of just 18,000 people but its location has made it a strategic prize in the diplomatic contest between China and Taiwan, and the broader strategic battle between Beijing and Washington.

Chinese President Xi Jinping installed new military leadership for its central and eastern regions amid an unprecedented purge of the top defense echelons.

Beijing has imposed sanctions on 20 U.S. defense-related companies and 10 executives. This move comes a week after Washington announced large-scale arms sales to Taiwan.