WASHINGTON (Reuters) -The U.S. Commerce Department is expected to propose barring Chinese software in autonomous and connected vehicles in the coming weeks, according to sources briefed on the matter.

The Biden administration plans to issue a proposed rule that would bar Chinese software in vehicles in the United States with Level 3 automation and above, which would have the effect of also banning testing on U.S. roads of autonomous vehicles produced by Chinese companies.

The administration, in plans first reported by Reuters, will also propose barring vehicles with Chinese-developed advanced wireless communications abilities modules from U.S. roads, the sources added.

Under the proposal, automakers and suppliers would need to verify that none of their connected vehicle or advanced autonomous vehicle software was developed in a "foreign entity of concern" like China, the sources said.

The Commerce Department said last month it planned to issue proposed rules on connected vehicles in August and expected to impose limits on some software made in China and other countries deemed adversaries.

Asked for a comment, a Commerce Department spokesperson said on Sunday that the department "is concerned about the national security risks associated with connected technologies in connected vehicles."

The department's Bureau of Industry and Security will issue a proposed rule that "will focus on specific systems of concern within the vehicle. Industry will also have a chance to review that proposed rule and submit comments."

A spokesperson for the Chinese Embassy in Washington said electric vehicles are a globalized industry.

"Only division of labor and cooperation can bring mutual benefits, and only fair competition can bring technological progress," the spokesperson said adding: "China urges the U.S. to earnestly abide by market principles and international trade rules, and create a level playing field for companies from all countries. China will firmly defend its lawful rights and interests."

On Wednesday, the White House and State Department hosted a meeting with allies and industry leaders to "jointly address the national security risks associated with connected vehicles," the department said. The sources said officials disclosed details of the administration's planned rule at that meeting.

The meeting included officials from the United States, Australia, Canada, the European Union, Germany, India, Japan, South Korea, Spain, and the United Kingdom who "exchanged views on the data and cybersecurity risks associated with connected vehicles and certain components."

Also known as conditional driving automation, Level 3 involves technology that allows drivers to engage in activities behind the wheel, such as watching movies or using smartphones, but only under limited conditions.

In November, a group of U.S. lawmakers raised concerns about Chinese companies collecting and handling sensitive data while testing autonomous vehicles in the United States and asked questions of 10 major companies including Baidu, Nio, WeRide, Didi, Xpeng, Inceptio, Pony.ai, AutoX, Deeproute.ai and Qcraft.

In letters, the group said that in the 12 months ended November 2022 Chinese autonomous vehicle (AV) companies test drove more than 450,000 miles (724,205 km) in California. In July 2023, Transportation Secretary Pete Buttigieg said his department had national security concerns about Chinese AV companies in the United States.

The administration is worried about connected vehicles using the driver monitoring system to listen in to or record conversations of occupants or take control of the vehicle itself.

"The national security risks are quite significant," Commerce Secretary Gina Raimondo said in May. "We decided to take action because this is really serious stuff."

(Reporting by David Shepardson; Editing by Mark Porter, Diane Craft and Muralikumar Anantharaman)