The step being contemplated by the Commerce Department is the same as taken against telecommunications vendor Huawei Technologies in May 2019, The Wall Street Journal reported.
Adding SMIC to the Entity Blacklist would mean that it would have to go through a lengthy process to try and obtain American components.
It would also mean that American companies would be cut off from billions that they earn from sales of components and software to SMIC.
SMIC has denied it is involved with the defence effort in China, saying it makes semiconductors for civilians and commercial end-users.
In May 2019, the US placed Huawei on its Entity List; American firms cannot sell products made in the US with more than 25% of American content to companies placed on this list without obtaining a licence.
But Huawei was able to easily skirt around this restriction by getting products it needed supplied by branches of US firms located outside the physical boundaries of the US.
The US came back in May this year with further restrictions aimed at cutting off Huawei's supply of semiconductors which it gets mostly from Taiwan Semiconductor Manufacturing Company.
This was done through the Foreign Direct Product Rule that makes it necessary for any company — American or foreign — that sells American products or those made using American technology to require a permit before selling to Huawei.
And in August, the US placed further strictures on Huawei, aimed at denying the company any access to semiconductors at all.