US Secretary of State Marco Rubio has since rowed back on his department’s claim, but called the fee for American vessels “absurd” due to a treaty binding the US to protect the canal if it comes under attack.

US President Donald Trump has repeatedly voiced his desire to regain control of the waterway since taking office and has refused to rule out retaking it by force. He is due to speak with Mulino on Friday.

The Panama Canal is a 51-mile (82km) passage that links the Atlantic and Pacific oceans across the Central American country.

All vessels are required to pay a fee, based on size and type, for crossing the waterway but US ships have priority of passage.

In a post on X on Wednesday, the State Department wrote: “U.S. government vessels can now transit the Panama Canal without charge fees, saving the U.S. government millions of dollars a year.”

Mulino reacted to the statement by saying he rejects “this method of managing bilateral relations on the basis of lies and falsehoods.”

He said he asked his ambassador in Washington to take “firm steps” to reject the claim, calling it “simply and plainly intolerable.”

Mulino added that US government vessels, including navy vessels, paid “$6-7m [£4.8-5.6m] a year” for the right of passage.

“It’s not as if the canal toll is breaking the economy of the United States,” he added.

The Panama Canal Authority (ACP) also made a statement saying it had “not made any adjustment” to tolls, adding that it was open to establishing a dialogue.

After Rubio and Mulino’s meeting, Panama announced it would not renew its membership of China’s infrastructure-building programme, known as the Belt and Road Initiative.

Rubio welcomed this move, calling it “a great step forward”, though Panama denied that the decision had been made at the request of the US.

Trump has expressed fears that China could close the canal to the US in the event of a crisis – something Panama and China have strongly denied.

On Wednesday, China’s Foreign Affairs spokesman, Lin Jian, said its partnership with Panama was yielding “fruitful results” and urged the country to “resist external interferences.”

Rubio met the canal’s administrator, Ricaurte Vásquez Morales alongside Mulino on Sunday. America’s top diplomat demanded that Panama make “immediate changes” to China’s “influence and control” over the waterway.

This echoed Trump’s inaugural address, where he stated that the canal was being operated by China and he wanted to “take it back.”

Mulino has denied these allegations and rejected the plan, saying that the trade route “is and will remain” in Panama’s hands.

The US built the canal in the early 20th Century but, after years of protest, President Jimmy Carter signed a treaty with Panama in 1977 to gradually hand back control of the waterway. Trump has called this “a big mistake” since returning to office.

US Secretary of State Marco Rubio has been on a tour of Central America to discuss migration and drug trafficking in the region.

Rubio’s statement responding to Mulino’s accusation of US “lies” was given at his last stop, the Dominican Republic.

America’s top diplomat said Panama must act or the US would take necessary measures to protect its rights under a treaty between the two countries.

The warning follows President Donald Trump’s vow to retake the canal and a meeting between Rubio and Jose Raul Mulino, Panama’s conservative president, in Panama City on Sunday.

The two men appeared to emerge from their two-hour meeting with different interpretations.

Mulino told reporters he did not see a serious threat of US military force to seize the canal, saying he had proposed technical-level talks with the US to address Mr Trump’s concerns about Chinese influence.

However, Trump’s vow to retake the canal has sparked a significant backlash in Panama. Protesters in Panama City on Friday burned effigies of Trump and Rubio.

Riot police moved in on another crowd of demonstrators, firing tear gas and wrestling people away. The clashes were small-scale, but the resistance to the US president’s stance is widely felt.

On Thursday, Mulino said the issue of the canal’s ownership would not be up for discussion with Rubio.

“I cannot negotiate or even open a negotiation process about the canal. It’s sealed, the canal belongs to Panama,” he said.

Mr Trump’s comments about the canal included an unfounded claim that Chinese soldiers are operating it. He also said American ships were unfairly charged more than others, despite the fact such a practice would be unlawful under treaty agreements.

The waterway is in fact owned and operated by the Panamanian government, under a neutrality treaty signed with the US decades ago. However, Chinese companies have invested heavily in ports and terminals near the canal. A Hong Kong based company runs two of the five ports close to its entrances.

But President Trump’s muscular approach – even refusing to rule out military action to take the canal – has aroused a strongly patriotic reaction in the small strategic nation.

“It’s ridiculous,” says Panama City resident Mari, who asked not to have her surname published.

“There’s a treaty that he has to respect, and there’s nothing in the treaty that says that we cannot have ports run by the Chinese,” she told the BBC, pointing out that there is Chinese investment in American ports and cities.

Surrounded by tourists and stalls hawking Panama hats and souvenirs, Mari explained that many residents have strong memories of US control of the canal and don’t want to go back.

The US and Panama signed a treaty in 1979, starting a handover process that saw Panama take full control of the canal in 1999.

“We could not cross into the canal zone without being arrested if we didn’t follow all the American rules. The minute you stepped across that border, you were in the United States,” Mari said.

“We had no rights within our own country, and we will not put up with that again… We are very insulted by [Trump’s] words.”

For some, Trump’s refusal to rule out the use of military force has also triggered suspicion and fear. It evokes memories of the 1989 US invasion of Panama to depose de facto ruler General Manuel Noriega, a conflict that lasted several weeks and rapidly overwhelmed Panamanian forces.

“I was the political leader of the opposition when Noriega said he was going to kill all the leaders of the opposition if the US were to invade,” recalled former Panama congressman Edwin Cabrera, speaking to the BBC by the locks of the canal’s Pacific entrance.

“I heard the bombs and started seeing people dying… The only thing President Trump and Rubio have left to say is that they will invade us,” he told the BBC. “I wouldn’t like to live that again in the 21st Century, relive the imperial experience. Panama is in the middle of war between two powers, the USA and China, while we are looking at the sky.”

Marco Rubio is the first Hispanic Secretary of State and is well known for his hawkish positions on some leaders in the region and on China. While Panama closely co-operates with the US on many issues, Mr Rubio’s visit is meant to signal the administration’s intolerance of countries soaking up Chinese investment in what the US sees as its own backyard.

In Panama, he claims China could ultimately use its interests at the ports to block US merchant or war ships in the event of a conflict or trade war.

“If China wanted to obstruct traffic in the Panama Canal, they could. That’s a fact… That’s what President Trump is raising and we’re going to address that topic… That dynamic cannot continue,” Mr Rubio said on The Megyn Kelly Show last week.

Despite the overwhelming support among ordinary Panamanians for their country’s ownership of the canal, some remain sceptical of their own leadership, arguing profits from the waterway don’t filter through to enough ordinary Panamanians.

“What you see here – that the United States and Donald Trump want to take back the canal – that’s what we call cause and effect,” says Andre Howell, a hotel worker in the historic centre of Panama City.

“They’re not administrating the Panama Canal the right way… No Panamanians have [the] benefits,” he said.

Mulino also reiterated on Thursday his rejection of US President Donald Trump’s accusation that the canal — which links the Caribbean Sea with the Pacific Ocean — is being operated by China.

Trump has pledged to take control of the strategic waterway, which is critical for trade.

“I cannot negotiate, much less open, a process of negotiation on the canal,” Mulino told reporters. “That is sealed. The canal belongs to Panama.”

Several US media outlets have reported that Rubio will travel to Panama and other countries in the region in the coming days, in his first foreign trip as US secretary of state.

The US helped build the canal and controlled it when it was first completed in 1914, but a 1977 treaty set the stage for the US to hand full control of the waterway to Panama in 1999.

Trump has made acquiring the canal a top foreign policy priority, claiming without evidence that Panama is overcharging US ships and allowing Chinese military presence around the canal.

Asked  earlier this month whether he would rule out the use of military force to achieve that aim, Trump told reporters: “I’m not going to commit to that.”

The US president also stressed the issue during his inauguration speech.

“American ships are being severely overcharged and not treated fairly in any way, shape or form, and that includes the United States Navy,” he said. “And above all, China is operating the Panama Canal. And we didn’t give it to China, we gave it to Panama, and we’re taking it back.”

According to the Panama Canal Authority, the agency that runs the waterway, the canal generated nearly $5bn in revenue last year.

On Thursday, Mulino said Panama has not received any information from the US about the “alleged military presence of another country in the canal”.

“The Panama Canal is controlled by Panama, and its administration has always been in Panamanian hands,” he said.

Mulino added that Panama has other issues to discuss with Rubio during his visit, including migration and drug trafficking.

Panama sits at the southern tip of Central America, bordering Colombia. Many migrants from South America travel through Panama to reach the US border.

The US invaded Panama in 1989 to topple then-President Manuel Noriega, who Washington accused of drug trafficking.

Trump made the remark during a news conference on Tuesday at which he also falsely stated that the Panama Canal was being operated by Chinese soldiers.

Panama’s Foreign Minister Javier Martínez-Acha responded by saying that “the only hands operating the canal are Panamanian and that is how it is going to stay”.

The Panama Canal was managed by the US for decades but under a treaty signed by the late US President Jimmy Carter in 1977, it was handed over to the Panamanians on 31 December 1999.

In his news conference at Mar-a-Lago on Tuesday, Trump described President Carter’s decision to hand the canal back as “a big mistake”.

He also expressed renewed interest in buying the Arctic island of Greenland – which is a self-governing territory of Denmark – as well as the Panama Canal.

Pressed by journalists on whether he would rule out using military or economic force to acquire Greenland and the Panama Canal, he said: “No, I can’t assure you on either of those two.”

Panama’s foreign minister denied his country had received any kind of offer from the president-elect.

“Trump’s opinions today, that he has talked about a certain amount of money, are not true. No kind of offer has been received, let it be clear,” Martínez-Acha said.

He added that “our canal’s sovereignty is not negotiable and is part of our history of struggle and an irreversible conquest”.

Panama’s president, José Raúl Mulino, has not yet reacted directly to Trump’s latest remarks.

But at a colourful ceremony marking the 25th anniversary of the handover of the canal to Panama held on 31 December, he told attendees to “rest assured, it will stay in our control forever”.

President Mulino has in the past appeared exasperated by Trump’s claims that the canal is under some sort of Chinese influence, saying “there are no Chinese soldiers in the canal, for the love of God”.

His government also stressed that “until 20 January, the US government is led by Joe Biden. From 20 January we will deal with Mr Trump and his government”.

“Panama is keen to co-operate and maintain excellent relations with the different governments.”

Asked if he would rule out using military or economic force in order to take over the autonomous Danish territory or the Canal, he responded: “No, I can’t assure you on either of those two.

“But I can say this, we need them for economic security,” he told reporters during a wide-ranging news conference at his Mar-a-Lago estate in Florida.

Both Denmark and Panama have rejected any suggestion that they would give up territory.

Trump also vowed to use “economic force” when asked if he would attempt to annex Canada and called their shared border an “artificially drawn line”.

The boundary is the world’s longest between two countries and it was established in treaties dating back to the founding of the US in the late 1700s.

The president-elect said the US spends billions of dollars protecting Canada, and he criticised imports of Canadian cars, lumber and dairy products.

“They should be a state,” he told reporters.

But outgoing Canadian Prime Minister Justin Trudeau said there isn’t “a snowball’s chance in hell” of the two countries merging.

The news conference was initially billed as an economic development announcement to unveil Dubai developer Damac Properties’ $20bn investment to build data centres in the US.

But the president-elect went on to criticise environmental regulations, the US election system, the various legal cases against him, and President Joe Biden.

Among a variety of other things, he suggested renaming the Gulf of Mexico the “Gulf of America” and restated his opposition to wind power, saying wind turbines are “driving the whales crazy”.

His remarks came as his son, Donald Trump Jr, was visiting Greenland.

Before arriving in the capital Nuuk, Trump Jr said he was going on a “personal day trip” to talk to people, and had no meetings planned with government officials.

When asked about Trump Jr’s visit to Greenland, Danish Prime Minister Mette Frederiksen told Danish TV that “Greenland belongs to the Greenlanders” and that only the local population could determine their future.

She agreed that “Greenland is not for sale”, but stressed Denmark needed close co-operation with the US, a Nato ally.

Greenland lies on the shortest route from North America to Europe and is home to a large American space facility. It also has some of the largest deposits of rare earth minerals, which are crucial in the manufacture of batteries and high-tech devices.

Trump suggested the island is crucial to military efforts to track Chinese and Russian ships, which he said are “all over the place”.

“I’m talking about protecting the free world,” he told reporters.

Since winning re-election Trump has repeatedly returned to the idea of US territorial expansion – including taking back the Panama Canal.

During the news conference, Trump said the canal “is vital to our country” and claimed “it’s being operated by China”.

He previously accused Panama of overcharging US ships to use the waterway, which connects the Atlantic and Pacific oceans.

Panamanian President José Raúl Mulino has rejected Trump’s claims and said there is “absolutely no Chinese interference” in the canal.

A Hong Kong-based company, CK Hutchison Holdings, manages two ports at the canal’s entrances.

The canal was built in the early 1900s and the US maintained control over the canal zone until 1977, when treaties negotiated under President Jimmy Carter gradually ceded the land back to Panama.

“Giving the Panama Canal to Panama was a very big mistake,” Trump said. “Look, [Carter] was a good man… But that was a big mistake.

“It’s unclear how serious the president-elect is about adding to the territory of the US, particularly when it comes to Canada, a country of 41 million people and the second-largest nation by area in the world.

During the news conference, Trump also repeated a number of falsehoods and odd conspiracy theories, including suggesting that Hezbollah, the Islamist militant group, was involved in the US Capitol riot of 2021.

In recent days Trump has threatened to take the canal back into US control, accusing Panama of “ripping off” the US by charging high shipping rates.

In a message posted to his Truth Social account on Wednesday, Trump wrote: “Merry Christmas to all, including to the wonderful soldiers of China, who are lovingly, but illegally, operating the Panama Canal”.

Mulino called the claim “nonsense” and said that there is “absolutely no Chinese interference”.

“There is not a single Chinese soldier in the canal,” he told reporters in Panama City.

Mulino also rejected the possibility of reducing tolls for US ships or ceding control of the canal, a major shipping channel which connects the Atlantic and Pacific oceans.

“The canal is Panamanian and belongs to Panamanians. There’s no possibility of opening any kind of conversation around this reality,” he said.

After breaking ties with Taiwan, Panama established diplomatic ties with China in 2017, and Mulino said relations between the two countries were “respectful, well-managed … in terms of what is in the interest of both countries.

“His comments came a day after Trump said he would nominate a Florida lawmaker to be his ambassador to Panama.

Kevin Marino Cabrera, a Republican commissioner in Miami-Dade County, worked for Trump’s 2020 campaign and this year was Florida’s representative to the Republican National Committee.

Announcing his pick in a Christmas Day post on his Truth Social network, Trump said Cabrera “will do a fantastic job representing our Nation’s interests in Panama!”.

The president-elect also repeated claims that Panama is “ripping us off”.

On Sunday, Trump told a crowd of conservative activists: “The fees being charged by Panama are ridiculous, highly unfair.

“If shipping rates are not lowered, Trump said, “we will demand that the Panama Canal be returned to us, in full, quickly and without question”.

Trump has also said he did not want the Panama Canal “falling into the wrong hands” and specifically cited China.

China is the second-largest user of the Panama Canal after the US, according to data, and also has major investments in the central American country.

On Christmas Day, Trump fired off dozens of messages defending his policies and nominations, and repeated suggestions that the US annex Greenland and Canada.

It is unclear how serious Trump is about the territorial moves, or how they would be accomplished.

Up to 14,000 ships travel through the 51-mile (82km) canal each year, including container ships carrying cars, natural gas and other goods, and military vessels.

Colombia, France, and later the United States controlled the territory surrounding the canal during construction. France began work on the canal in 1881, but stopped in 1889 because of lack of investors’ confidence due to engineering problems and a high worker mortality rate.

The US took over the project in 1904 and opened the canal in 1914. The US continued to control the canal and surrounding Panama Canal Zone until the Torrijos–Carter Treaties provided for its handover to Panama in 1977.

After a period of joint American–Panamanian control, the Panamanian government took control in 1999. It is now managed and operated by the Panamanian government-owned Panama Canal Authority.

Canal transit costs have increased over the past year due to a historic drought, according to shipping industry website Lloyd’s List.

A Hong Kong-based company, CK Hutchison Holdings, manages two ports at the canal’s entrances.