The Vanuatu Govenrment is split over granting diplomatic status to Taiwan.
The Prime Minister, Serge Vohor, secretly negotiated the arrangement in Taipeh last week, but the Council of Ministers on Wednesday rejected the plan.
A statement from Foreign Minister, Barak Sope, says the Council of Ministers reaffirms Vanuatu's strict adherence to the one China policy.
But the Prime Minister's spokesman, Kal Moli, says he is confident that the Council will change its view when it hears from Mr Vohor who is due back in Port Vila tomorrow.
Mr Moli says they want both Taipeh and China to maintain embassies.
Mr Moli says Taiwan has pledged money to kick start the economy in rural areas.
Earlier this week China said it had ten million US dollars in aid for Vanuatu but beyond asking for luxury cars for VIPs, the Vanuatu Government had made no suggestions on how this money might be spent.