China and Nicaragua upgraded their bilateral ties on Wednesday, setting the stage for the Asian giant to provide more economic support to the sanctioned Central American state and furthering Beijing's strategic ambitions in the United States' backyard.

Nicaragua's President Daniel Ortega in Cuba.

Beijing and Managua re-established diplomatic ties in 2021 after Nicaragua broke off relations with Chinese-claimed Taiwan, which U.S. officials attributed to the allure of the prospect of fresh investment from China after Western countries sanctioned President Daniel Ortega's government over human rights abuses.

"I am willing to work with President Ortega to take today's announcement of a China-Nicaragua strategic partnership as a new start, to push relations between our two countries forward to build a model of solidarity, cooperation and mutual benefit," Chinese President Xi Jinping told Ortega during a call to mark the second anniversary of the resumption of diplomatic ties, Chinese state media reported.

Xi said the China-Nicaragua Free Trade Agreement would take effect on Jan. 1.

China, the world's second-largest economy, is already a major investor in Central and Latin America and could provide Nicaragua with welcome financial support as the United States ratchets up economic pressure on Ortega's administration.

"China is also willing to strengthen its solidarity and cooperation with Nicaragua in international affairs and opposing hegemony and power politics," state media reported Xi as saying.

Nicaragua also faces sanctions from Canada, the United Kingdom and European states, while a United Nations Human Rights Council report in March concluded the Nicaraguan government had committed "widespread and systematic human rights violations that amount to crimes against humanity."

In 2018, Ortega's government waged a bloody crackdown on anti-government protests - which it has made illegal - and has jailed dozens of opposition figures that officials have accused of fomenting a coup. Rights groups have denounced the actions as a descent into dictatorship.

In an earlier statement, China's foreign ministry said it "firmly supports Nicaragua in steadily moving forward with its domestic political agenda and resolutely opposes interference in Nicaragua's internal affairs by external forces".

Nicaragua reiterated that it would not have any form of official exchange with Taiwan, the ministry said.

Taiwan's Foreign Ministry criticized the comments, saying Ortega had switched to China for his own personal gain and has "willingly become an accomplice in China's destruction of democracy and peace, which is despicable".

Nicaragua has strategic importance for China given its proximity to the United States. In recent years, Beijing has steadily stepped up its diplomatic engagement across the region, establishing diplomatic ties with neighbouring Honduras in May and offering support to nearby, diplomatically isolated Cuba and Venezuela.

"China is ready to be a reliable friend of Nicaragua and will continue to firmly support Nicaragua in safeguarding its national independence, dignity and in opposing foreign interference," Xi said.