Chinese Super League clubs will only be allowed to play three non-Chinese players per game in their next season - which begins in March.
A rule change has reduced the number of foreigners allowed in a move which could slow down the wave of big-money signings from Europe.
Chelsea striker Diego Costa has been linked with a move to China that would be worth £30m a year.
A statement said the new measures will address "irrational investments".
Previously the rule was "4+1" - four foreigners of any nationality plus one Asian player in a matchday squad.
Teams will now also be required to name two Chinese players aged under 23 in their matchday squads, with at least one in the starting XI, with the Chinese Football Association also looking into "signature fees and other illegal activities" in recent transfers.
Chelsea midfielders Oscar and John Mikel Obi have already moved to China this month, while former Manchester United and Manchester City forward Carlos Tevez reportedly became the world's highest-paid player when he joined Shanghai Shenhua last month.
Shenhua would be one club hit by the new rules as they have six non-Chinese players in their squad, including Tevez, former Chelsea forward Demba Ba and ex-Newcastle striker Obafemi Martins.
Costa has been linked with a move to Tianjin Quanjian, who signed Belgium midfielder Axel Witsel for a salary of more than £15m a year this month.
'A move to foster local talent' - analysis
BBC China correspondent Stephen McDonell
Chinese teams have been paying reportedly exorbitant sums to lure international stars like Carlos Tevez and Axel Witsel. Now, the new rules will especially affect players from the Asian region - like Australians and Koreans - who were able to be chosen on top of the previous international count of four.
It is hoped the changes will foster more local talent at the expense of overseas players.