Chinese regulators have said they will require Facebook parent Meta to unwind its acquisition of AI start-up Manus, based in Singapore but founded by Chinese engineers, which Meta bought in late December in a deal estimated to be worth about $2 billion (£1.5bn).

Officials in China said in January they were reviewing the deal, which was considered a test case for Chinese businesses looking to establish entities in Singapore in order to attract foreign investment, as Manus had done.

The decision by the National Development and Reform Commission is likely to discourage such strategies and to increase the complexity of relations between Chinese tech companies and foreign investors, especially in cutting-edge areas such as AI.

The Commission, a ministry that oversees economic planning and plays a leading role in setting China’s AI policy, said on Monday it had decided to prohibit foreign investment in Manus and would require “the parties involved to withdraw the acquisition transaction”.

Meta said in a statement provided to Silicon UK that the transaction “complied fully with applicable law”.

“We anticipate an appropriate resolution to the inquiry,” the company said.

Manus was founded in China and was previously based there, and had a parent company in China.

The firm was incorporated offshore and set up in China as a foreign-owned entity, with affiliated offices in Beijing and Wuhan.

It is unclear how the deal would be unwound. Meta has said its and Manus’ teams are “deeply integrated”. Members of the Manus team have been working alongside those from Meta at the company’s office in Singapore, the New York Times reported, citing unnamed people.

Manus executives have reportedly been restricted from leaving China during the inquiry.

Meta has been spending tens of billions on AI infrastructure and talent as it races to compete with rivals such as OpenAI and Google.

The company said last week it planned to lay off thousands of staff to “offset” its AI spending.