The Chinese state has hacked the Ministry of Defence, Sky News understands.
MPs will be told today of a massive data breach involving the MoD, targeting service personnel.
The government will not name the country involved, but Sky News understands this to be China.
The Chinese state is to be accused of two or three attempts at hacking MoD employees - including personnel.
The cyberattack was on a payroll system with current service personnel and some veterans. It is largely names and bank details that have been exposed.
All salaries will be paid this month.
China's foreign ministry said it "firmly opposes and fights all forms of cyber attacks" and "rejects the use of this issue politically to smear other countries".
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Tobias Ellwood, a Conservative MP and former soldier, told Sky News that China "was probably looking at the financially vulnerable with a view that they may be coerced in exchange for cash".
Defence Secretary Grant Shapps will make a statement to the Commons today, with the BBC reporting he will set out a "multi-point plan" which will include action to protect affected service men and women.
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The MoD hopes serving personnel will not be concerned about their safety. They will be provided with advice and support.
The contractor system is not connected to the main MoD computer systems and has been taken down with a review launched.
Read more:
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China 'trying to undermine our democracy'
The MoD has been working at speed over the last 72 hours to understand the scale of the hack after it was discovered in recent days.
It is understood investigations have not so far shown any data has been taken.
This could raise questions about whether other countries with challenging relationships with China will want to share sensitive intelligence with the UK.
This comes fewer than two months after China's "state-affiliated actors" have been blamed by the government for two "malicious" cyberattack campaigns in the UK.
Government minister Mel Stride told Sky News on Tuesday morning China is "an epoch-defining challenge" and "our eyes are wide open" - quoting the Integrated Review of the UK's national security and international policy completed in 2021.
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He would not confirm if China is the country that hacked the MoD but said the UK needs to "get the balance right" when it comes to Beijing.
Mr Stride added: "By balance, I mean protecting our security. At the same time, I recognise and, of course, China is a very important economic player globally and, of course, big global challenges like climate change need to have China at the table, if we are to resolve those as well."
Making a speech in the Commons in March, Deputy Prime Minister Oliver Dowden revealed the two previous incidents involved an attack on the Electoral Commission - responsible for overseeing elections and political finance - in 2021, and targeted attacks against China-sceptic MPs.
Labour's shadow defence secretary John Healey said there are "so many serious questions for the defence secretary on this, especially from Forces personnel whose details were targeted".
He added: "Any such hostile action is utterly unacceptable.
"Parliament will expect a full Commons statement tomorrow."
Sir Iain Duncan Smith, a Conservative MP and former soldier who has been sanctioned by China, told Sky News: "This is yet another example of why the UK government must admit that China poses a systemic threat to the UK and change the integrated review to reflect that.
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"No more pretence, it is a malign actor, supporting Russia with money and military equipment, working with Iran and North Korea in a new axis of totalitarian states."
Mr Ellwood said: "We are learning the hard way how art warfare is rapidly changing as technology advances.
"Defending the digital terrain is now just as important as the physical - this is another reminder why we need to invest more in defence and security.
"Targeting the MoD's payroll and bank details was probably looking at the financially vulnerable with a view that they may be coerced in exchange for cash.
"And if this type of cyberattack is taking place here in the UK we can assume other nato countries will be targeted too."
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Xi Jinping, China's president, is currently on a tour of Europe - although he is not set to visit the UK.
He spent Monday in Paris and will travel with French President Emmanuel Macron to the Pyrenees on Tuesday.
After that, he will visit Serbia on Wednesday and Hungary on Thursday - both countries which are on friendly terms with Beijing.
