The US is lifting long-standing restrictions on contacts between American and Taiwanese officials, Secretary of State Mike Pompeo says.
The "self-imposed restrictions" were introduced decades ago to "appease" the mainland Chinese government, which lays claim to the island, the US state department said in a statement.
These rules are now "null and void".
The move is likely to anger China and increase tensions between Washington and Beijing, reports the BBC.
It comes as the Trump administration enters its final days ahead of the inauguration of Joe Biden as president on 20 January.
China regards Taiwan as a breakaway province, but Taiwan's leaders argue that it is a sovereign state.
Relations between the two are frayed and there is a constant threat of a violent flare up that could drag in the US, an ally of Taiwan.
In a statement on Saturday, Mr Pompeo said the US state department had introduced complicated restrictions limiting the communication between American diplomats and their Taiwanese counterparts.
"Today I am announcing that I am lifting all of these self-imposed restrictions," he said. "Today's statement recognises that the US-Taiwan relationship need not, and should not, be shackled by self-imposed restrictions of our permanent bureaucracy."
He added that Taiwan was a vibrant democracy and a reliable US partner, and that the restrictions were no longer valid.
Following the announcement, Taiwan Foreign Minister Joseph Wu thanked Mr Pompeo, saying he was "grateful".
"The closer partnership between Taiwan and the US is firmly based on our shared values, common interests and unshakeable belief in freedom and democracy," he wrote in a tweet.
Last August, US Health and Human Services Secretary Alex Azar became the highest-ranking US politician to hold meetings on the island for decades.
In response, China urged the US to respect what it calls its "one China" principle.
The US also sells arms to Taiwan, though it does not have a formal defence treaty with the country, as it does with Japan, South Korea and the Philippines.
China and Taiwan were divided during a civil war in the 1940s.
Beijing has long tried to limit Taiwan's international activities and both have vied for influence in the Pacific region.
Tensions have increased in recent years and Beijing has not ruled out the use of force to take the island back.
Although Taiwan is officially recognised by only a handful of nations, its democratically-elected government has strong commercial and informal links with many countries.