The Chinese government has demanded that Gauthier, who has been Beijing correspondent of L'Obs magazine for the past six years, issue a public apology for an article published last month on its anti-terror policies in the western province of Xinjiang, home to the mainly Muslim Uighurs some of whom complain of discrimination against their culture and religion.
The article "flagrantly championed acts of terrorism and acts of cruelly killing innocents, triggering the Chinese people's outrage," said the foreign ministry statement. "It is not suitable for her to continue working in China."
Officials have said they will not renew her press credentials unless she makes a "serious apology to the Chinese people".
Non-renewal of her press card would mean that she could not apply for a new visa.
"China will never support the freedom to champion terrorism," the foreign ministry statement said.
Although the article, which accused the Chinese authorities of using the 13 November Paris attacks to justify repression in Xinjiang, was not published in a Chinese-language version and is not accessible in mainland China in its French version, state-run media launched bitter attacks on it, leading to verbal attacks and threats to Gauthier on social media.
On Saturday some social media users took issue with government claims that they were outraged by an article that they had not even seen.
"There is a clampdown on the whole sphere of public expression," Gauthier told RFI on Friday. "There were some very brave lawyers who expressed themselves on social media. There were Chinese journalists who had the Chinese equivalent of a Twitter account and who spread news, there were very widely read and followed bloggers. All these people have been brought to heel, locked up, gagged and today it seems it is the turn of the foreign press. This is above all a bad sign for foreign journalists here."
Gauthier, who spent 10 years in China as a child, was one of the rare foreign correspondents to speak fluent Mandarin, according to RFI's former Beijing correspondent Stéphane Lagarde.
"What's most surprising is the deafening silence of the French authorities," Lagarde writes on his blog Encres de Chine, quoting a foreign ministry source as saying that Paris prefers "persuasion" to "confrontation" when it comes to relations with China.
Press freedom campaign Reporters Without Borders (RSF) shares his concern.
“We understand that the French embassy in Beijing has played its role in trying to unblock the situation," Benjamin Ismail head of Asia desk at RSF told RFI on Saturday. "In Paris the ministry for foreign affairs should do more. They should speak directly to their counterpart in China and take a firmer stance to protect not only journalists but press freedom in general. Because this sets a precedent. If Ursula Gauthier can be expelled for her writing, what’s next?”
Gauthier is the first foreign correspondent threatened with expulsion from China since Al Jazeera's Melissa Chan was thrown out of the country in 2012.