Super Orange HK had been looking to acquire Bristol-based Pulsic, but the UK government said there was the potential for tools to be exploited "to build defence or technological capabilities".
The decision is the latest attempt by the government here in the UK to limit Chinese involvement in British businesses and technology.
In 2020, Huawei was banned from the UK's 5G infrastructure over national security concerns, while the government is continuing to review a Chinese-backed takeover of the Newport Wafer Fab, Britain's largest microchip factory.
The government used the National Security and Investment Act, which came into force in January to block the deal – the act gives it the powers to scrutinise and intervene deals where national security is a concern.
The Department for Business, Energy and Industrial Strategy said the software developed by Pulsic could be used "to facilitate the building of cutting-edge integrated circuits that could be used in a civilian or military supply chain".
It said the decision to block the takeover was "necessary and proportionate to mitigate the risk to national security".
