A Chinese proposal to impose national security laws on Hong Kong could see mainland intelligence agencies set up bases there, raising fears of direct law enforcement and what US Secretary of State Mike Pompeo called a "death knell" for the city's autonomy.
Communist Party rulers in Beijing unveiled details on Friday, a day after proposing the legislation that critics see as a turning point for China's most free-wheeling city.
Pro-democracy activists and politicians in the former British colony have for years opposed such legislation, arguing it could erode its autonomy, guaranteed under the "one country, two systems" agreement under which Britain returned Hong Kong to China in 1997.
"Beijing is attempting to silence Hong Kongers' critical voices with force and fear," activist Joshua Wong, one of the leaders of pro-democracy street protests in 2014, tweeted.
Some pro-democracy lawmakers denounced the plans as "the end of Hong Kong".
Hong Kong activists called for people to rise up against the proposal, aimed at tackling secession, subversion, terrorism, and foreign interference, that has sent shockwaves across the business and diplomatic communities.
Foreign diplomats fear establishing new Beijing agencies in Hong Kong could give mainland security and intelligence officers enforcement powers that could potentially put rights and freedoms, protected in the handover agreement, at risk.
Calls have emerged for flash mobs at night across the territory and democracy activists plan to meet the press to announce "street action".
"This is a great moment to reboot the protest," said university student Kay, 24, who took part in last year's often violent anti-government and anti-Beijing protests that entered a lull this year due to the coronavirus.
The security law plan hit financial markets on concerns the city's status as a financial hub is at risk. Hong Kong's Hang Seng index closed down 5.6 per cent, its largest daily percentage drop since July 2015.
Hong Kong leader Carrie Lam said her government will "fully cooperate" with the Chinese parliament to safeguard national security, which she said would not affect rights, freedoms or judicial independence.
The proposals could heighten tensions between Beijing and Washington, whose relationship is already frayed by trade disputes and reciprocal accusations over handling of the pandemic.
US President Donald Trump warned Washington would react "very strongly" if Beijing went ahead with the security law.
Pompeo said the "disastrous proposal" would be the "death knell" for Hong Kong's autonomy and that the United States stood with the people of Hong Kong.
"It is starting to look like a US-China summer of discontent in the making," said Stephen Innes, chief global market strategist at AxiCorp.
Innes said the new law could reignite the 2019 anti-China protests, the biggest crisis the city has faced since 1997.
In his annual report to parliament, Chinese Premier Li Keqiang said China would establish a "sound" legal system and enforcement mechanisms to ensure national security in Hong Kong and Macau, a former Portuguese colony that returned to China in 1999.
The proposed move will see China's parliament endorse, then annex the laws into Hong Kong's mini-constitution, the Basic Law, without any local legislative scrutiny, according to a draft seen by Reuters.
Foreign diplomats fear this could formalise and expand the presence of mainland security and intelligence services in Hong Kong. Currently they can take no enforcement action in the city.
A previous attempt to adopt similar legislation in 2003 was met with a protest that drew around half a million people on to the streets and was eventually shelved.