The situation was at a "crossroads", but must not be allowed to develop into a conflict, he said after hosting US Secretary of State Rex Tillerson.
Mr Tillerson spoke of "dangerous levels" of tension, a day after suggesting the US might launch a pre-emptive strike against North Korea.
North Korea is working to develop nuclear missiles that can reach the US.
Last week, it launched four ballistic missiles - defying United Nations resolutions.
The US has deployed its Terminal High-Altitude Area Defense system (Thaad) in South Korea in a move it says is designed to protect against threats from North Korea.
But China has claimed the system goes "far beyond" the defence needs of the Korean peninsula.
Mr Tillerson, a former oil executive with no prior diplomatic experience, will meet Chinese President
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Mr Xi is scheduled to visit the United States next month for his first meeting with President Trump.
Some commentators expect Mr Tillerson to downplay any tensions between the two countries ahead of that encounter.
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