Yarlung Tsangpo, and it enters India in the mountainous, remote northeastern state of Arunachal Pradesh, where it is called the Siang.
The 1,800-mile (2,900 kilometre) river then descends into the plains of adjoining Assam state and ends in Bangladesh in the Bay of Bengal, along the way supplying water to hundreds of millions of farmers and residents.
Local Indian state lawmaker Tako Dabi told AFP Thursday he suspected China was diverting river water resulting in an estimated 40 percent drop in the flow at the Indian town of Pasighat.
"Our projects have not affected the lower stream regions, including those in India," China's foreign ministry spokesman Hong Lei told reporters when asked of his nation's water usage on the river.
"Overall, the utilisation of the river by the Chinese side is very low."
China pays attention to the impact on the lower stream regions when developing its water resources, Hong said, adding that Chinese officials have briefed India on its development of the Yarlung Tsangpo.
"To satisfy the needs the Tibet Autonomous Region, China has begun to build the hydroelectric power station of Zangmu in the middle part of Yarlung Tsangpo river," Hong said.
"It does not have a big capacity and does not retain an excessive amount of water. It will not affect the downstream water regulation and environment."
Beijing has regularly faced similar complaints over its water usage from Southeast Asian nations for damming the Mekong and Salween rivers, both of which originate in China.
Dabi said the drying up of the river in Arunachal Pradesh was shocking with patches of sand showing up along the river bed.
"We suspect the sudden drying up of the Siang could be a result of China either diverting the river water on their side or due to some artificial blockades somewhere in the upper reaches," Dabi, an advisor to the state's chief minister and a former home minister, said.
Video footage from the river showed the Siang -- normally a gushing torrent several kilometres (miles) wide at Pasighat, according to Dabi -- reduced to flowing in narrow channels in a large sandy riverbed.
The problem was highlighted on the day the Chinese Foreign Minister Yang Jiechi held talks in New Delhi with his Indian counterpart S.M. Krishna.