The U.S. should not accept a trade deal from China that excludes regulations on Chinese technology giant Huawei, hardline former Trump advisor Steve Bannon told CNBC on Thursday.

"Huawei is essentially a dirty bomb inside industrial democracies," said President Donald Trump's former chief White House strategist. "I think we're finally waking people up to that."

Last month, the U.S. declared a national emergency over threats against American technology, leading the Trump administration to effectively blacklist Huawei from conducting business with U.S. companies. About a week later, the agency put a 90-day hold on the move.

Huawei has been accused of being linked to China's ruling Communist Party, something the corporation has repeatedly denied. U.S. officials are concerned the equipment could help China access Americans' user data.

The U.S. has tried to rally pressure on other countries to follow suit in banning Huawei, but it has faced resistance from the European Union, which has declined to ban the tech giant.

This comes as Washington and Beijing have been engaged in an 11-month trade war and stepped up tit-for-tat tariffs in the past two months. Trump and Chinese President Xi Jinping are set to meet at the G-20 summit in Japan on Saturday.

The Wall Street Journal reported Thursday that Xi is expected to present the U.S. with preliminary terms before Beijing will settle the trade disputes. Among the conditions is a deal on Huawei. China will reportedly demand the U.S. remove its restrictions on the sale of U.S. tech to Huawei.

The Huawei piece is going to be a "very big deal" in the overall talks, Bannon said in a "Squawk Box" interview. "I think that's why Xi is putting it out there as a precondition for everything else to go on."

However, Bannon stressed that Trump and U.S. negotiators "can't waiver on Huawei."

Trump administration officials, including Commerce Secretary Wilbur Ross, have been saying that Huawei poses national security risks.

Ross, on CNBC earlier this month, lumped Huawei in with another Chinese tech giant ZTE. "Both are doing practices that we think are potentially injurious to our national security," he said.

Last year, the U.S. reached a deal with ZTE to end crippling restrictions for alleged Iran and North Korea sanction violations. The ZTE agreement included a $1 billion penalty and a requirement that a U.S.-picked compliance team be embedded in the company.

Bannon has been critical of China in the past, telling CNBC in May that the country has been "running an economic war against the industrial democracies for now 20 years."