China is considering new legislation to define terrorism more precisely, in the face of what an official described as a "real threat".
State news agency Xinhua said the draft bill could pave the way for a renewed campaign against terrorist groups and allow their assets to be frozen.
China says it faces an organised terrorist threat from radical Muslims in the far western region of Xinjiang.
Many suspects have been tried under vague laws protecting social order.
Proponents of the new draft bill say it should make it easier to bring terrorism charges.
But critics say it is the Chinese government's economic policies and restrictions on cultural and religious expression which are fostering anger among Xinjiang locals, reports the BBC's Martin Patience in Beijing.
According to Xinhua, China's criminal law permits jail terms of up to 10 years for those found to have organised, led or actively participated in terrorist organisations.
But the law contains no specific definitions of what constitutes a terrorist, a terrorist act or organisation, it quoted the Vice Minister of Public Security, Yang Huanning, as saying.
This adversely affects "the fight against terrorism, control over terrorist assets, and international anti-terrorism co-operation", it quoted him as saying.
So a draft bill has been submitted by the state council, China's cabinet, for approval by the country's top legislature, the National People's Congress, supplying specific definitions.
"In the draft bill, terrorist acts are defined as those acts which are intended to induce public fear or to coerce state organs or international organisations by means of violence, sabotage, threats or other tactics," Xinhua said.
"These acts cause or aim to cause severe harm to society by causing casualties, bringing about major economic losses, damaging public facilities or disturbing social order.
"Instigating, funding or assisting with other means are also terrorist acts, according to the draft bill," Xinhua reported.
"China is faced with the real threat of terrorist activities, and the struggle with terrorism is long-term, complicated and acute," Mr Yang was quoted as saying.