China is banning automakers from using the terms "smart driving" and "autonomous driving" when they advertise driving assistance features, and will tighten rules around such technology upgrades, the government told industry representatives, according to a transcript of a meeting.

The mandate on vehicle advertising was delivered by the Ministry of Industry and Information Technology in a meeting with nearly 60 representatives from automakers on Wednesday, according to a transcript seen by Reuters and confirmed by one of the attendees.

The move follows a fatal accident involving Xiaomi's best-selling SU7 sedan in March that triggered widespread concerns over vehicle safety.

Preliminary findings showed the Xiaomi car caught fire after hitting a cement roadside pole at a speed of 97 kph (60 mph), seconds after its driver took over control from the advanced driving assistance system (ADAS).

The ministry confirmed the meeting on Wednesday had taken place in a short statement that said it provided clarity to automakers about new requirements published in February involving driving-related over-the-air technology upgrades of intelligent and connected vehicles.

Under the updated rule, automakers are no longer allowed to test and improve their ADAS via remote software updates for vehicles already delivered to customers without approval, according to the meeting transcript.

They are now required to carry out sufficient tests to verify reliability and to obtain approval from the authorities before such roll-outs.

Huawei, which supplies its ADAS to at least seven brands including Audi in China, was among the firms that attended the meeting, according to the transcript. Huawei did not immediately respond to a request for comment.

The regulatory move comes as automakers have been rushing to launch new models equipped with ADAS, touting the "smart driving" capability as a key selling point to battle a brutal price war that has extended into a third year in the world's largest auto market.

BYD rolled out at least 21 affordable models in February priced from less than $10,000 that are equipped with free "smart driving" features. Many of its peers including Leapmotor and Toyota followed suit, introducing affordable vehicles with similar features.

China's public security ministry's traffic safety research center said on Monday that automakers which misled consumers by fabricating or exaggerating assisted driving functions in advertisements could face fines of five to 10 times the advertising fee or have their business license revoked, citing China's advertising law.

False advertising of an assisted driving function could constitute a criminal law violation when it causes serious consequences, such as traffic accidents resulting in casualties, the research center said in an article, cautioning that perpetrators may be sentenced to less than two years in prison.

Chinese regulators are tightening scrutiny of electric vehicle technologies as the industry has grown faster than expected, with sales of EVs and hybrids accounting for more than half of total vehicle sales late last year, a milestone achieved ahead of policymakers' schedule.

The regulators are also tightening EV battery standards, aiming to reduce the risks of fires and explosions.

Analysts and industry sources cautioned stricter regulations would increase costs and slow the pace of technology development and adoption. But it could also accelerate a long-overdue consolidation in China's crowded auto industry that has been grappling with overcapacity, they added.