Image copyright Getty Images

Chinese tech giant ZTE has signed an agreement with the US clearing the way for it to resume business in the country.

Once ZTE makes a $400m (£303m) security deposit, an order to lift the ban will be issued, the US Commerce Department said.

ZTE was blocked from buying US parts in April after the US found it violated trade bans with Iran and North Korea.

The move comes as a US-China trade war is escalating.

"Once the ZTE has completed the $400 million escrow deposit, BIS will issue a notice lifting the denial order," the US Department of Commerce said on Twitter, referring to the Bureau of Industry and Security.

ZTE, China's second largest telecoms manufacturer, depends on US-made components for the production of its handsets.

The ban forced the firm to suspend major operations, prompting China's President Xi Jinping to ask the US to reconsider the punishment.

In June, the US reached a deal with ZTE that would allow it resume full activities in the US if it met a range of requirements including: paying a $1bn penalty, hiring a compliance team chosen by the US, replacing much of its management board and paying $400m into a holding account to insure against future violations.

The Trump administration's deal-making with Beijing has been criticised by a group of bipartisan US senators who want to see the ban kept in place citing national security and other concerns.

"Allowing ZTE to resume business is a direct betrayal of President Trump's promise to be tough on China and protect American workers. The administration's terrible ZTE deal will undermine our national and economic security," US Senator Chuck Shumer said in a statement.

But the US Commerce Department defended the government's position, saying the settlement "represents the toughest penalty and strictest compliance regime the Department has ever imposed in such a case".

The ZTE saga comes at a time when US China relations are already very tense.

The US government last week fired the opening shots of an outright trade war by placing tariffs on $34bn of Chinese goods. It escalated the dispute this week by listing another $200bn worth of Chinese products it plans to hit with tariffs as soon as September.

China, which has begun fighting back, said it was "shocked" by the US action and has accused it of launching the "largest trade war in economic history."

What is Beijing's 'Made in China 2025' plan?