The decision came despite the U.S. raising the debt ceiling and averting a default, and even as both Fitch and Moody's re-affirmed the U.S.'s Triple-A rating.

An A rating puts the U.S. five notches below Triple-A and at the same level as Russia.

Explaining its decision Dagong said the debt deal had not changed the general trend in which the increase in debt outpaced the increase in GDP and tax revenue.

Dagong said that while the increase in the debt ceiling matched the cuts, "there is an eight-year difference between the two objectives."

According to the firm, the U.S. needs to cut its fiscal deficit by at least $4 trillion within the next 5 years to maintain its current debt size.

China's central bank, meanwhile warned on Wednesday that the Treasury market was likely to be choppy and urged the U.S. to act "responsibly" on the debt situation.

It was the first official reaction from the country since the debt crisis began. China is the largest creditor to the U.S. and has foreign exchange reserves of $3.2 trillion, about two-thirds of which are in dollar-denominated assets.

Dagong's ratings cut though is unlikely to have any major implications in the bond market, given that most investors rely on ratings from the big three firms - Moody's, Standard & Poor's and Fitch.

Michael Hasenstab, who manages $150 billion in fixed income and is senior vice president and portfolio manager at Franklin Templeton, also said Dagong's ratings lacked transparency.

"The challenge with that rating agency out of China is that there's not a lot of transparency and so it's a little difficult to take too much out of that," Hasenstab told CNBC on Wednesday.

Hasenstab, however, said Dagong's action raised an important issue that politicians had been unable to deal decisively with the debt issue and the bruising political fight had hurt confidence in the U.S.

"(The) process, I think, has unnerved the markets and unnerved the world," he said.