There were an estimated 50,000 new cases of HIV in 2007 taking the total to 700,000 people living with the virus in China, said the report issued jointly by UNAIDS and a committee of the State Council, China's Cabinet.
Despite a fall in the rate of new cases from when data was last collected in 2005, infections were still spreading and sex - not intravenous drug use - was now the main form of transmission, Chinese Minister of Health Chen Zhu said at a news conference.
"China's HIV epidemic remains one of low prevalence overall but with pockets of high infection among specific sub-populations," he said. "A number of core challenges remain."
Prostitutes and gay men were singled out for risky behavior that was contributing to most of the new cases, Chen said. Some 60 percent of prostitutes do not regularly use condoms, according to the report, which was to be officially released Saturday to coincide with World AIDS Day.
New cases were rising among these groups. Beijing must ensure transmission from high-risk populations, "can be stopped and held down, because there is substantial potential for spreading," said Bernhard Schwartlander, country coordinator for UNAIDS in China.
The current rate of infection was less than 1 percent of China's overall population, but put as many as 50 million others at risk now that the main form of transmission was sex, he said.
Prostitution is widespread in China, even though it is officially illegal. Raising concerns are the many migrant workers who visit brothels, exposing themselves, their spouses and other partners to infection.
HIV gained a foothold in China largely due to unsanitary blood plasma-buying schemes and tainted transfusions in hospitals. Chen told reporters Thursday that these practices had been "effectively contained," but did not elaborate.
After years of denying that AIDS was a problem, Chinese leaders have shifted gears dramatically in recent years, confronting the disease more openly and promising anonymous testing, free treatment for the poor and a ban on discrimination against people with the virus.
The topic, however, still remains very sensitive and authorities regularly crack down on activists and patients seeking more support and rights.
Stigma associated with HIV/AIDS and discrimination against people with the disease remains high in some communities and workplaces, the report said. This leads to high-risk people not getting testing or admitting they have HIV, aiding its spread, the report said.
Chen welcomed the work of civil groups and mass organizations that have reached out to those with HIV/AIDS. Celebrity awareness of the disease has also helped reduce stigma and increase awareness, he said.
"The report shows how far the government has come in responding to HIV," said Ed Settle, HIV/AIDS Program Manager for UNDP China.
"They've come to the realization that high risk groups need more attention and they recognize that civil society groups have more of a role in reaching out to the more vulnerable."
But many organizations have run into difficulties getting proper legal registration, the report noted. China has long been wary of NGOs, fearing they might be acting as agents for foreign governments or encouraging defiance of the Communist Party.
The number of officially reported HIV cases in China remained only 223,501 - far lower than the estimated total, probably in part because of reluctance to seek testing. The figure includes those who developed AIDS and those who died from the disease.
In 2004, China scaled back the estimated number of people infected with HIV, the virus that causes AIDS, from nearly 1 million to 840,000, and then further lowered the figure to 650,000 in 2005.
Experts have said the figures are probably accurate because they are in line with a change in the way data are collected.
Global health officials said earlier this month that the estimated number of people infected with HIV worldwide fell from almost 40 million last year to about 33.2 million this year, the result of a different methodology which shows that the AIDS pandemic is losing momentum.
The old numbers were largely based on how many infected pregnant women were at prenatal clinics, as well as projecting the AIDS rates of certain high-risk groups like drug users to the entire population at risk. Officials said those figures were flawed, and are now incorporating more data like national household surveys.