Sanctions from the United Nations prevent China from participating in such trade deals.
The intervention follows satellite footage captured earlier this week which appeared to show the two countries exchanging oil.
A South Korean Foreign Office Minister said the event took place in October.
The vessel, Lighthouse Winmore, was transferring refined petroleum products to a North Korean ship in international waters.
The US proposed blacklisting the ship for ignoring international sanctions placed on North Korea at the UN Security Council.
Heavy trading restrictions were placed on North Korea earlier this year in response to their testing of ballistic missiles.
When satellite footage emerged earlier this week allegedly showing China exchanging oil with a North Korean vessel, Beijing denied the account.
However, US President Donald Trump was quick to take to Twitter to blast: “Caught RED HANDED – very disappointed that China is allowing oil to go into North Korea.
“There will never be a friendly solution to the North Korea problem if this continues to happen!”
The Trump administration has led a drive to step up global sanctions on North Korea in response to Pyongyang’s efforts to develop nuclear-tipped missiles capable of hitting the United States.
Washington says the full cooperation of China, North Korea’s neighbour and main trading partner, is vital to the success of this effort, while warning that all options are on the table, including military ones, in dealing with North Korea.
The UN Security Council last week unanimously imposed new sanctions on North Korea for a recent intercontinental ballistic missile (ICBM) test, seeking to further limit its access to refined petroleum products and crude oil.
The UN resolution seeks to ban nearly 90 percent of refined petroleum exports to North Korea by capping them at 500,000 barrels a year.
The US-drafted resolution also caps crude oil supplies to North Korea at 4 million barrels a year and commits the Council to further reductions if North Korea were to conduct another nuclear test or launch another inter-continental ballistic missile.
More to follow…