According to the ambassador's letter, sent to the German economics minister and seen by the Wall Street Journal, the United States would not be able to maintain its current level of coordination with German security services as it believes Huawei poses national security risks.
The US has been lobbying its allies to boycott Huawei due to national security risks.
In one of the most explicit demands the U.S. made from its allies, Washington sent a letter to the German government to cut off ties and block all possible attempts of Huawei to enter the country's telecommunication systems or otherwise face a possibility of losing access to most of USA intelligence.
The U.S. Embassy in Berlin said on Monday that use of untrusted vendors by allies in their 5G mobile networks could jeopardize future sharing of intelligence by the U.S. government.
Germany, like other European Union countries, has relied heavily on USA intelligence on terror and other threats provided by the National Security Agency, the Central Intelligence Agency and other spy services.More news: Twitter reacts to Anthony Barr backing out of agreement with Jets
More news: Trudeau denies 'partisan' meddling in prosecution
More news: Baker Mayfield, Jarvis Landry react to OBJ joining Cleveland Browns
The Chinese telecoms behemoth has strenuously denied the espionage allegations.
Germany had announced on March 7 that it wouldn't stop any company from bidding on 5G communications contracts.
Up to now, Germany has rebuffed any USA attempts to sway it into barring Huawei from participating in the development of its next-generation networks, as Washington and some of its allies did earlier over the company's alleged ties to Chinese intelligence and suspected involvement in commercial espionage. However, they stressed that the United States would no longer trust Germany's lines because 'the Americans will assume that all information given to Germany will end up in China'.
The US, Australia and New Zealand have all blocked local firms from using Huawei to provide the technology for their 5G networks. However, Germany does not appear swayed by the US' arguments against Huawei, and plans to allow Huawei to bid for the project.
The legal changes are still being finalised within Germany's ruling coalition, the ministry spokesman said. And other countries have issued security warnings about Huawei and China, including the Czech Republic and Lithuania. However, a CNBC report found that, under Chinese law, Huawei would be compelled by the Chinese government to assist with government surveillance if the government asks.