The Xiushui county government in Jiangxi province said it has halted a practice in which its family planning agency blocked the registrations of children whose parents had violated the family planning rules until fines were paid.
The county said on its micro blog on Monday that the authority has stopped demanding that fines be paid before the issuance of a household registration, or hukou, for a child.
"The registration of babies will be strictly in line with the national policy," it said.
The Beijing News reported that the county's family planning commission had a tacit agreement with the police that families who violated family planning rules must pay fines to the commission before the police would register the hukou.
For each fine, the police would get 200 yuan ($32) to 400 yuan, the report said.
The government said it has created a task force to investigate the matter.
Huang Yizhi, a Beijing-based lawyer, said the law requires registration offices to provide hukou for all Chinese citizens and not attach any preconditions.
"Linking the social support fee with hukou has no legal basis, and it will damage a person's fundamental rights, as hukou, which affords permanent residency status, entitles one to go to school, join the army, take an exam and get married," Huang said.
The country relaxed its family planning policy in November so that couples are allowed to have two children if one of the parents is an only child. Even so, most Chinese families can only have one child.
In Xiushui county, money paid to the public security bureaus by family planning offices in townships totaled more than 1 million yuan a year, the Beijing News reported.
Because she cannot afford the social maintenance fee, a resident of Bailing has been unable to register hukou for her two grandchildren, aged 1 and 2. Both are "extra" births. The mother and father are migrants who work in Guangdong province.
According to the provincial regulations related to family planning and the social support fee, the woman must pay about 30,000 yuan.
Social support fees in the county amount to more than 20 million yuan a year. Most of it will either be returned to village and township governments as rewards or kept by county family planning commission officials for their own expenses, the report said.