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The case is the first time China has been the subject of a complaint that went all the way through to the WTO's Dispute Settlement Body since joining the organisation in 2001.
China has a minimum local content requirement of 60 percent for home produced cars and if this is exceeded, it then levies the same tariff on the vehicle as it would if it was imported completely built.
The plaintiffs argued that this measure violates China's WTO accession agreement which pledged a progressive opening up of its markets.
WTO officials were not immediately available for comment Wednesday.
China is increasingly the focus of WTO complaints after keeping a relatively low profile in its first few years in the organisation and as its booming economy sends exports all over the world.
In 2004, the US said it planned to lodge a complaint at the Disputes Settlement Body over tax breaks for Chinese computer chip makers but the two sides negotiated a solution four months later without the need for WTO arbitration.
Since then, the US has lodged several other complaints against China with the WTO, including its record on protecting Intellectual Property Rights (IPR) in October last year.
Washington claims that US companies have lost billions of dollars due to copywright theft and piracy in China while Beijing insists it is doing its best to stamp out the problem.
China also last year for the first time lodged a complaint of its own over what it claimed were unfair US anti-dumping and anti-subsidy investigations into products such as specialist paper.
The EU said earlier this month it was considering launching WTO action against China for restrictions on foreign financial news organisations.
In December, US Treasury Secretary Henry Paulson said China had continued to fall short of its WTO commitments and had even regressed in some areas.
"There is no doubt that there are areas where our side believes they could be doing a better job of living up to their commitments and where there's been some retrogression," Paulson said on a visit to China.
At the same time, Paulson noted that there had been overall progress by China in addressing US trade concerns in general.
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