UPDATE 6-Taiwan says China "out of control" as it loses El Salvador to Beijing

Beijing@

* Taiwan says not prepared to play dollar diplomacy

* Taipei says setback will not hinder international presence

* El Salvador sees great benefits in Beijing link

* Taiwan loses five allies since 2016

* China undermines peace framework - de facto U.S. embassy (Adds comment from de facto U.S. embassy in Taiwan)

TAIPEI/BEIJING, Aug 21 (Reuters) - Taiwan vowed on Tuesday to fight China's "increasingly out of control" behaviour after Taipei lost another ally to Beijing when El Salvador became the third country to switch allegiances to China this year.

Taiwan now has formal relations with only 17 countries worldwide, many of them small, less developed nations in Central America and the Pacific, including Belize and Nauru.

Speaking in Taipei, President Tsai Ing-wen said Taiwan would not bow to pressure, describing El Salvador's decision as further evidence of China's efforts to squeeze the island, which have included regular Chinese bomber patrols around Taiwan.

"We will turn to countries with similar values to fight together against China's increasingly out-of-control international behaviour," Tsai said.

Taiwan Foreign Minister Joseph Wu told reporters earlier that Taipei was not willing to engage in "money competition" with its giant neighbour.

He said El Salvador had been continuously asking for "massive funding support" since last year for a port development, but Taiwan was unable to assist with the "unsuitable project" after assessment.

"Pressure from China would only make Taiwan more determined to continue our path of democracy and freedom," he said.

"China's rude and unreasonable behaviour will certainly have negative impact to cross-strait relations. This is also not how a responsible country should behave."

Beijing considers Taiwan to be a wayward province of one China, ineligible for state-to-state relations, and has never renounced the use of force to bring the island under its control.

In Beijing, the Chinese government's top diplomat, State Councillor Wang Yi, said El Salvador had made the right decision.

"I'm confident that the people of El Salvador will feel the warmth and friendship of the Chinese people and derive tangible benefits from its cooperation with China," Wang told reporters alongside his El Salvador counterpart, Carlos Castaneda, shortly after the pair signed an agreement establishing ties.

"EXTRAORDINARY OPPORTUNITIES"

El Salvador's president, Salvador Sanchez Ceren, announced in a nationally televised speech that his government had broken off diplomatic relations with Taiwan and instead established ties with China.

Sanchez Ceren said the central American country, which built ties with the Republic of China government in 1933, would see "great benefits" and "extraordinary opportunities" in the new relationship with Beijing.

Taiwan's formal name is the Republic of China, whose government fled to Taiwan in 1949 after losing a civil war with the Communists.

"We are convinced this is a step in the right direction that corresponds to the principles of international law of international relations and the inevitable trends of our time," Sanchez Ceren said.

In Beijing, Castaneda said it was a strategic decision his government made to "create conditions to change the historical standing of our country and to really elevate the livelihood of our people".

Taiwan has accused China of luring its friends away with offers of generous aid packages. China denies that.

The news comes as Tsai wrapped up a high-profile trip to Latin America, including stops in the United States, that drew anger from China.

"China will not get unification with Taiwan by luring away our allies. What China did was to humiliate Taiwan repeatedly without getting any respect from Taiwan's people," Taiwan's ruling Democratic Progressive Party wrote in a statement.

El Salvador is the fifth country Taiwan will lose as a diplomatic ally since Tsai came to office in 2016, following Burkina Faso, the Dominican Republic, Sao Tome and Principe and Panama.

Amanda Mansour, spokeswoman of the de facto U.S. embassy in Taiwan, told Reuters in a written statement late on Tuesday that China's efforts were "harmful" and had undermined "the framework that has enabled peace, stability, and development for decades".

"The United States urges China to abstain from coercion that would jeopardize the security, or the social or economic system, of the people on Taiwan," she wrote.

The U.S. ambassador in El Salvador, Jean Manes, wrote in a Twitter post on Tuesday the United States was analysing El Salvador's "worrisome" decision to break ties with Taiwan.

"Without a doubt, this will impact our relationship with the (Salvadoran) government. We continue supporting the Salvadoran people," she wrote without elaborating.

Ahead of next month's summit between China and African leaders in Beijing, China has also been upping the pressure on Taiwan's last remaining ally on the continent, eSwatini, formerly known as Swaziland, to come over to China's side, diplomatic sources say.

"We hope the relevant country can see clearly the world's trend," Chinese Foreign Ministry spokesman Lu Kang told a daily news briefing, when asked whether eSwatini would attend the summit.

China's hostility to Taiwan has grown since Tsai's election as Beijing fears she wishes to push for the island's formal independence, a red line for China. She says she wants to maintain the status quo but will defend Taiwan's democracy.

(Reporting By Jessica Macy Yu, Yimou Lee in Taipei, Philip Wen and Ben Blanchard in Beijing and Nelson Renteria in San Salvador; Editing by Michael Perry, Robert Birsel and Alison Williams)