The scenario of the maneuver, the first of two rehearsals for a major exercise to be held on August 25, was that Taiwan troops had failed to hold off an amphibious landing by Chinese forces, TVBS cable television showed.
As Taiwan troops tried to stop simulated Chinese forces from pushing further inland, a fleet of US-made Cobra and OH-58D Scout gunships fired laser-guided Hellfire missiles while howitzers and tanks fired on targets.
China, which has some 600 ballistic missiles aimed at the island, has itself been staging large-scale military exercises on Dongshan island, 150 nautical miles west of Taiwan, as part of its stepped up preparedness for any conflict with the island.
Taiwan's drill came as Defense Minister Lee Jye confirmed a report that in a recent computer-simulated exercise, Taiwanese troops were wiped out 130 hours after the People's Liberation Army (PLA) started invading.
But Lee was swift to urge Taiwanese not to panic over the outcome of the simulation.
"The computer drill included the toughest scenarios so that we are able to know where our flaws are," Lee told reporters.
Also the simulated attacks did not include intervention by the United States and Japan, the Chinese-language Apple Daily said.
The blitz was simulated as happening in 2006, the year when President Chen Shui-bian is scheduled to push for a new Taiwan constitution, which Beijing has warned against, the daily said.
After the first day of the Chinese "attacks", Taiwan's airports, bunkers, harbours and key government buildings were destroyed by extensive assaults using 700 ballistic missiles, it said.
The bulk of the air force's 330 jet fighters were destroyed two days after the attacks started.
The simulated battles ended when the PLA captured the capital Taipei in the sixth day of the assault.
Against this backdrop, former deputy defense minister Lin Chong-pin recommended the military beef up its preparedness for street battles in any "asymmetric warfare" with China.
Citing the US forces' painful lesson in Iraq, Lin said: "Street battles would be an excellent strategy in a place known as a city jungle."
To counter China's arms buildup, Taiwan's defense ministry plans to purchase eight conventional submarines, 12 P-3C submarine-hunting aircraft and modified Patriot PAC-3 systems from the United States.
Since pro-independence Chen was re-elected in March Beijing has stressed its long-standing vow to take Taiwan by force should the island try to declare formal independence.
The two sides split in 1949 at the end of a civil war.