Image source, ReutersThe University of Manchester was prevented from licensing vision-sensing technology to a Chinese company because of national security concerns.
The National Security and Investment Act prevented the licence agreement from being signed.
According to the Times, the technology could be used in missiles.
The university said they would abide by the decision.
It had procedures in place to look at international agreements.
The university voluntarily referred the agreement to the UK government after following the legislation.
The agreement was to develop, test and verify, manufacture, use and sell licensed products using "Scamp-5" and "Scamp-7" vision sensor.
The university's website says that these do not output raw images, but perform their own computations, delivering high-speed and low-power consumption.
There is a chance that the technology could be used to build defence or technological capabilities which may present national security risk to the United Kingdom, according to the business secretary.
Tom Tugendhat is a former Conservative Party leader.
The Chinese Embassy has been contacted.
Reaction among users of Chinese social-network Weibo has been critical, with some saying the UK must co-ordinate with Chinese companies to stay on top of the country's rapidly developing technology.
A national-security assessment was launched earlier this year into the takeover of the UK's largest chip plant by a Chinese company.
Critics of the deal say that the manufacturer of the chips is important to the UK.
Beijing wanted their "world-leading expertise, technology, research and commercial advantage", warned the directors of MI5 and FBI.
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