China denies illicit dealing. But a Hong Kong-flagged ship suspected of supplying oil to North Korea in defiance of international sanctions was seized by South Korea last month.
Officials say the vessel, the Lighthouse Winmore, made the transfer to a North Korean ship in international waters.
The revelation comes after President Trump claimed China had been "caught" allowing oil into the North, saying that this would prevent "a friendly solution" to the crisis over Pyongyang's nuclear and missile programmes.
"I have been soft on China because the only thing more important to me than trade is war," Trump said in an interview with The New York Times.
Beijing though is adamant that it has done nothing wrong.
"We never allow Chinese citizens and companies to engage in activities that violate Security Council resolutions," Chinese Foreign Ministry spokeswoman Hua Chunying told reporters on Friday.
"If, through investigation, it is confirmed there are violations..., China will deal with them seriously in accordance with laws and regulations."
China is Kim Jong-un's only major ally.
The United States says Beijing's full cooperation is vital to the success of efforts to rein in North Korea, while warning that all options are on the table, including military ones, in dealing with the reclusive state.
A senior South Korean foreign ministry official said the ship, the Lighthouse Winmore, was seized when it arrived at a South Korean port in late November.
"It's unclear how much oil the ship had transferred to North Korea, for how long and on how many occasions, but it clearly showed North Korea is engaged in evading the sanctions," the official told Reuters.
South Korea's customs service concluded that the Lighthouse Winmore had loaded about 14,000 tons of Japanese refined petroleum products in South Korea on Oct. 11, reportedly bound for Taiwan, the official said.
But instead, it transferred as much as 600 tons to the North Korea-flagged Sam Jong 2 on Oct. 19 in international waters between China and the Korean peninsula, on the order of its Taiwan-based charterer, the ministry official said.