In early 1946, Mongolia and the Soviet Union renewed the 1936 Protocol Treaty of Friendship and Mutual Assistance for another ten years, this time making it extendable. Although the provisions remained essentially the same, what had been a protocol treaty became a formal treaty to signify that, because China had relinquished claims of suzerainty, Mongolia was legally competent to handle its own foreign affairs. Thus Mongolia's close defense ties with the Soviet Union continued, as did Soviet military assistance in the form of training and matériel. This treaty encouraged Ulaanbaatar's intransigence against Guomindang (Kuomintang in Wade-Giles romanization), or Chinese Nationalist Party, troops in 1947, when violence flared along the ill-defined and disputed Mongolian-Chinese border in the Altai Mountain region. Indigenous Kazakhs and Mongols had been grazing their herds indiscriminately throughout the entire area, and the Soviets had developed gold and tungsten mines in areas the Chinese considered part of Xinjiang. Kazakh rebels opposed to the Chinese regime had declared their autonomy in 1944, probably with Soviet encouragement; however, when China reestablished control over Xinjiang in 1946, some of the Kazakh leaders redefected to China.

In June 1947, Mongolian cavalry with tank and air support attacked the Kazakh and Chinese troops, apparently in an attempt to take over the disputed territory. The Soviet Union and Mongolia denied that they were aggressors and claimed that the Chinese were 15 kilometers inside Mongolia; the Chinese countered that the Mongolian army had driven 200 kilometers into Xinjiang. The Chinese were driven back, and the Soviets continued to operate the mines despite a further outbreak of fighting in early 1948.

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China raised yet another precondition for recognizing Mongolia's independence: it would do so if Mongolia's aspiration for independence would be confirmed by the Mongolian people themselves in a national referendum. So the people of Mongolia cast their votes confirming their status of being citizens of an independent Mongolia in a national referendum conducted on October 20, 1945. The Chinese Kuomintang Government, which had long been considering Mongolia as a part of China, had to recognize the independence of the Mongolian People's Republic and signed the protocol in the establishment of diplomatic relations on February 13, 1946. Only 3 years later, in 1949 People's Revolution won in China which led to the establishment of the People's Republic of China. This created favorable external condition as for strengthening the independence of the Mongolian People's Republic.

The Government of the MPR recognized the People's Republic of China and established diplomatic relations with the latter on October 6, 1949, laying the foundation for good-neighbourly and friendly relations between the two countries. The two countries concluded the Treaty in 1962 and pledged to respect each other's independence and coexist peacefully.