The Obama administration has decided not to label China as a "currency manipulator" Tuesday but it noted that China's currency, the yuan, remains "significantly undervalued" and urged China to make further progress.

In its semi-annual report, the U.S. Treasury said the yuan had risen 12.6 percent against the U.S. dollars in inflation adjusted terms since June 2010, when the central bank committed to insert more "flexibility" into its exchange-rate regime.

China has managed to keep the yuan, or RMB, in a tight trading band since 2005, whereby the yuan is pegged against a basket of foreign currencies.

Despite that, the Treasury said China did not meet the legal requirements to be deemed as a currency manipulator, which could have sparked U.S. trade sanctions.

"The Chinese authorities have substantially reduced the level of official intervention in exchange markets since the third quarter of 2011, and China has taken a series of steps to liberalise controls on capital movements, as part of a broader plan to move to a more flexible exchange rate regime," the Treasury said.

China's trade and current account surpluses both have fallen to 2.6 percent of GDP from peaks of 8.8 and 10.1 percent of GDP, respectively, with the real effective exchange rate keeping rising and economic structuring kicking in in the world's second-biggest economy, according to the report.

It noted though the RMB remains "significantly undervalued" and that "further appreciation of the RMB against the dollar and other major currencies is warranted."

The Treasury will continue to closely motor exchange rate developments in all countries with "particular attention" to the pace of the yuan's appreciation, it added.

Defeated US presidential candidate Mitt Romney had said he would have branded China a currency manipulator on his first day in office.

Twice a year, the Treasury gives a report to Congress on trade policies of its key partners, including China, Japan, Korea, the Euro zone, which account for three quarters of US trade.

Previous reports also found China's currency undervalued but stopped short of naming China a currency manipulator.

The Treasury's latest decision was applauded by the U.S.-China Business Council, which represents about 240 American companies that do business with China, Reuters said.

"An international consensus is growing that the yuan is closing in on its fair value after about a decade at an artificially weak level. The International Monetary Fund softened its language on the yuan in July," it said.