The 30-member security organisation approved a new blueprint for the next decade on Wednesday, condemning China for the first time in its more than 70-year history.
"The PRC's (People's Republic of China) malicious hybrid and cyber operations and its confrontational rhetoric and disinformation target allies and harm alliance security," NATO said in its first planning document in a decade.
NATO, which includes the US, UK, Canada and most of Europe, warned the Chinese government was "rapidly expanding" its nuclear capability without increasing transparency or engaging in good faith in arms control.
China's stated ambitions and coercive policies "challenge our interests, security and values," NATO said.
"The PRC employs a broad range of political, economic and military tools to increase its global footprint and project power, while remaining opaque about its strategy, intentions and military build-up," it added.
NATO also accused China of using its economic leverage to "create strategic dependencies and enhance its influence".
"It strives to subvert the rules-based international order, including in the space, cyber and maritime domains," it said.
"The deepening strategic partnership between the People's Republic of China and the Russian Federation and their mutually reinforcing attempts to undercut the rules-based international order run counter to our values and interests."
Prime Minister Anthony Albanese told NATO leaders that China aimed to become the "most powerful nation in the world", adding a strengthening of relations between Beijing and Moscow posed a risk to all democratic nations.
"Just as Russia seeks to recreate a Russian or Soviet empire, the Chinese government is seeking friends, whether it be ... through economic support to build up alliances to undermine what has historically been the Western alliance in places like the Indo-Pacific," Mr Albanese told the NATO gathering in Madrid.
Mr Albanese said Australia had been subjected to "economic coercion" by China and urged democratic leaders to pursue trade diversification.
Chinese foreign ministry spokesman Zhao Lijian said NATO should stop "trying to launch a new Cold War".
"Stop trying to mess up Asia and the world after messing up Europe," he said.
"What they should do is give up their Cold War mindset, zero-sum games and stop doing things that create enemies."
Meanwhile, Mr Albanese met with the leaders of New Zealand, Japan and South Korea on the sidelines of the NATO summit as part of the "Asia-Pacific Four" grouping, which was invited to participate for the first time.
"NATO has sent a strong message by including Asia-Pacific leaders in discussions at this forum," Mr Albanese said.
Japanese Prime Minister Fumio Kishida pointed to the invasion of Ukraine by Russia had shaken the foundation of rules-based global order.
"The security of Europe and the security of the Indo-Pacific cannot be decoupled," he said in opening remarks.
Mr Albanese concurred saying "it is clear that (Russian) President Putin's barbaric and illegal invasion of Ukraine has consequences far beyond Europe's borders".
