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As a result of the new designation, "telecom companies cannot use money from our $8.3 [billion] Universal Service Fund on equipment or services produced or provided by these suppliers," FCC Chairman Ajit Pai wrote in a Tuesday tweet.
Huawei and ZTE urged the U.S. not to impose the new label in separate filings with the FCC in February after the Commission voted 5-0 in favor of the label.
The Universal Service Fund is a system of telecom-related subsidies that ensures nationwide access to phone and internet services.
"In making this decision, @FCC took into account input from Congress, Executive Branch, intelligence community, allies, and communications service providers. [The] overwhelming weight of evidence supported designation of Huawei and ZTE as national security risks to U.S. networks," Pai continued.
He added that Huawei and ZTE have "close ties" to the Chinese Communist Party and the Chinese military. Both companies are subject to a 2017 law that President Xi Jinping put into place requiring all Chinese businesses to comply with information requests from the CCP, posing a threat to U.S. intelligence.
"With this decision, we are sending a clear message: the U.S. Government, and this @FCC in particular, cannot and will not allow the Chinese Communist Party to exploit vulnerabilities in U.S. communications networks and compromise our critical communications infrastructure," Pai added.
Washington has also been calling on other countries, like the U.K., to limit the use of Huawei technology, citing national security risks.
A U.S. official said on Thursday that the U.S. is willing to help other countries finance purchases of next-generation telecom technology from Western providers so they can avoid Huawei.
Washington is lobbying European and other allies to exclude Huawei Technologies Ltd. as they upgrade to fifth-generation (5G) networks. Australia, Japan and some others have imposed restrictions on Chinese technology, but Huawei’s lower-cost equipment is popular with developing countries and is making inroads into Europe.
The move to block Huawei will also increase market competition for other Western telecom companies that make 5G equipment.
The Associated Press contributed to this report.