The punishment is the heaviest yet for international accounting firms operating in China.
PwC will be banned from signing off on any financial results in the country for six months.
Already, it has been losing clients.
China's finance ministry said on Friday it was imposing 116 million yuan in fines and confiscation of illegal gains on PwC Zhongtian, also known as PwC China, as well as a six-month business suspension, revocation of PwC's Guangzhou branch and an administrative warning.
A separate regulator, the China Securities Regulatory Commission, also imposed fines and confiscations totalling 325 million yuan on PwC for allegedly failing to perform due diligence in the audit of Evergrande.
China's finance ministry said PwC issued "false audit reports" of Evergrande and the audit procedures had "serious defects" in design and implementation, leading to many false conclusions.
It also accused PwC of not maintaining "professional scepticism" and failing to point out errors and a lack of information disclosure by Evergrande during the audits.
The securities regulator said 88 per cent of the records kept by PwC regarding the real estate projects were inconsistent with the actual implementation and were "seriously unreliable".
When on-site investigations were carried out, some projects were still "a piece of vacant land" despite being considered to have met the delivery conditions, the regulator said.
PwC came under Beijing's scrutiny after the January collapse of Evergrande, the world's most indebted developer and a symbol of China's ongoing property crisis.
China's securities regulator said in March that Evergrande had inflated its mainland China revenues by almost $US80 billion ($A119 billion) in 2019 and 2020.
In May, authorities fined the company $US577 million.
PwC had audited Evergrande's accounts for 14 years until 2023 and gave it a clean bill of health.
PwC has been the largest of the "big four" accounting firms operating in China, taking in nearly eight billion yuan in revenues in 2022, above competitors Deloitte, KPMG and EY, according to the Chinese Institute of Certified Public Accountants.
China has been cracking down on excessive borrowing by developers during a prolonged property market slump that has hit many other parts of the economy, including construction, building materials and home appliances.