(Reuters) -Taiwan Semiconductor Manufacturing Co (TSMC) has notified Chinese chip design companies that it is suspending production of their most advanced AI chips from Monday, the Financial Times reported, citing three people familiar with the matter.

TSMC, the world's largest contract chipmaker, told Chinese customers it would no longer manufacture AI chips at advanced process nodes of 7 nanometres or smaller, FT said on Friday.

The U.S. has imposed a raft of measures aimed at restricting the shipment of advanced GPU chips - which enable AI - to China to hobble its artificial intelligence capabilities, which Washington fears could be used to develop bioweapons and launch large-scale cyberattacks.

Earlier this month, the U.S. imposed a $500,000 penalty on New York-based GlobalFoundries for shipping chips without authorization to an affiliate of blacklisted Chinese chipmaker SMIC.

Any future supplies of the advanced AI chips by TSMC to Chinese customers would be subject to an approval process likely to involve Washington, according to the FT report.

"TSMC does not comment on market rumour. TSMC is a law-abiding company and we are committed to complying with all applicable rules and regulations, including applicable export controls," the company said.

The U.S. Department of Commerce did not immediately respond to a Reuters request for comment.

The move to restrict exports to China comes at a time when the U.S. Department of Commerce is investigating how a chip produced by the Taiwanese chipmaker ended up in a product made by China's heavily sanctioned Huawei.

(Reporting by Rishi Kant in Bengaluru; Editing by Mrigank Dhaniwala and Shounak Dasgupta)