According to the Chinese Foreign Ministry, Foreign Minister Wang Yi and his Panamanian counterpart, Isabel de Saint Malo, have signed a communique to officially establish diplomatic relations between the two nations.
Panama’s President Juan Carlos Varela had earlier stated that the Central American country would break ties with Taiwan and establish official relations with China.
On Tuesday, Panama officially severed ties with Taiwan in favor of this new arrangement with Asian superpower China, which – in no uncertain terms – rubber stamps the Central American country's recognition of the One China Policy.
Both Beijing and Panama City have agreed to respect each other's sovereignty and territorial integrity.
Ministers Wang and Malo recognized and highlighted the importance of mutual non-interference relations, emphasizing the need to develop friendly relations based on the principle of equality, mutual benefit and peaceful coexistence.
"In accordance with the interests and aspirations of the two nations, China and Panama decided to establish diplomatic relations from the moment of signing the relevant communique," the ministry's statement read.
Beijing has long viewed self-ruled Taiwan as a breakaway province, since the defeat of Chinese Nationalist forces by Mao Zedong’s Communists prompted a move to the island in 1949.
Many countries, including the U.S., does not recognize Taiwan as a sovereign nation.
Currently, Taiwan maintains formal ties with 20 governments – 12 of which are based in Latin America and the Caribbean.