The United States slammed China's complaint, insisting the country was seeking "to distract from its own non-market policies and practices that undermine a fair, competitive, and mutually beneficial trading system".
The world's second-largest economy initially brought the case to the WTO in March, charging that the US Inflation Reduction Act (IRA) "formulates discriminatory subsidy policies for new energy vehicles", referencing a classification that includes electric cars and hybrids.
In 2022, the United States announced a massive aid programme to support companies in the energy transition sector and electric cars manufactured on American soil.
The United States has insisted that the act was a tool to address the climate crisis and "invest in US economic competitiveness".
It was also meant to counter Beijing's subsidies for electric vehicles and the wider green industry within China, which has poured vast state funds into domestic firms as well as research and development.
China has denied that its industrial policies are unfair and has repeatedly threatened retaliation to safeguard its companies.
It says the IRA "distorts fair competition, seriously disrupts global new energy vehicle industrial and supply chains, and violates WTO rules".
Washington blocked an initial request for a WTO panel in the case in July, but a second request was granted Monday during a meeting of the organisation's Dispute Settlement Board, according to a Geneva-based trade official.
Under WTO regulations, parties in a dispute can block a first request for an arbitration panel, but if the parties make a second request, it is all but guaranteed to go through.
A US representative told Monday's meeting that "China's challenge is particularly hypocritical in light of China's targeting of clean energy sectors for global dominance".
"If China chooses to go forward with a panel proceeding, the United States will vigorously defend the Inflation Reduction Act clean energy tax credits as fully consistent with WTO rules and necessary to address our global climate crisis," the representative said, according to a transcript provided by the US mission.
"Existing WTO rules cannot be understood to prevent WTO Members from taking action to address the most urgent global issues of our time."
The WTO dispute comes at a time when Beijing and Washington are locking horns over a series of trade issues, including customs duties, cutting-edge technologies and a possible ban on social media site TikTok.
The United States had already announced in May that it was quadrupling customs duties on imported Chinese electric vehicles, with economic competition with Beijing at the heart of the US presidential campaign.
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