Microsoft has its Azure cloud services operating in partnership with 21Vianet Group, which is based in China.
Whereas AWS is the public cloud leader globally, it has struggled to crack a Chinese market that has traditionally been served by its own tech firms.
In a statement Amazon emphasised that it had not sold its business in China, saying that it "remains fully committed to ensuring Chinese customers continue to receive AWS's industry leading cloud services".
Beijing Sinnet Technology said it would buy Amazon's Chinese web services business for up to $301 million, effectively killing off the USA firm's cloud-computing business in the country.
Amazon signed a deal in August 2016 to allow Chinese partner Sinnet operate the Amazon services provided by Amazon Web Services (AWS) in China. "We're excited about the significant business we have in China and its growth potential over the next number of years".
Regulators in China have tightened rules on cloud services and foreign data, implementing new measures of surveillance and increasing the scrutiny of data transfer that cross borders.
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"This move is mostly around regulatory compliance", said Charlie Dai, Beijing-based analyst at Forrester Research. He added this move was necessary for AWS to increase its other areas of business within the market. AWS runs a separate hardware venture in collaboration with the Ningxia provincial government in China's northwest, according to Reuters.
Amazon's cloud business in China already faced tougher rules due to China's tight internet controls.
Other tech giants from the US faced hard situations in China.
Sinnet said that the ongoing purchase would help the unit follow the local laws and regulations and make improvements in quality and security of the service. Apple eliminated VPNs from its app store in July 2017, as Chinese government restricted the use of such services.
In recent year, cloud services are becoming a crowded and major competitive domain in China.