Shanghai authorites have banned the use of a taxi apps during peak business times, from 7:30- 9:30am and 4:30-6:30pm.
The Chinese city's government has said the app, which users hail cabs with, is unfair on other taxi firms who do not have a similar app.
The new rules on smartphone apps is a setback for tech firms hoping to capitalise on the trend for taxi-ordering apps.
The Shanghai Municipal Transport and Port Authority said the changes were necessary because the apps had affected the "fairness of the taxi industry".
Even more strict was the authority's blanket ban of using apps to summon private cars.
The move follows measures introduced in Beijing, which has also restricted the use of the increasingly popular taxi-booking apps.
The apps allow users to "bid" for cabs, essentially allowing customers and drivers to negotiate a price for services while also sidestepping government price controls.
Taxi App Industry
The fast-growing sector attracted more than $43 million in investment over the last two years from tech giants Tencent Holdings Ltd and Alibaba Group Holding Ltd.
The market is dominated by Didi Taxi and Kuaidi Taxi, which together held almost 90 per cent of the market by daily taxi app orders last year, according to iResearch.
Tencent and Alibaba have been locked in a battle to attract customers, offering generous rebates to drivers and riders to use their apps and payments systems.
The move is expected to be a setback for US firm Uber, which has launched in Shanghai and other Chinese cities, and allows passengers to book private cars.