Authorities in Karamay banned people wearing hijabs, niqabs, burkas, or clothing with the Islamic star and crescent symbol from taking local buses, the Karamay Daily reported.
The ban also covers "large beards", the paper said, adding: "Those who do not cooperate with inspection teams will be handled by police."
Xinjiang, a resource rich region which abuts central Asia, is the homeland of China's mostly Muslim Uighur minority and has been hit by a wave of clashes between locals and security forces which have killed hundreds in the past year.
China has blamed several deadly attacks on civilians outside the region in recent months on "terrorists" seeking independence for the region.
Rights groups say restrictions on Uighurs' religious and cultural freedoms have stoked tensions.
China last month enforced a ban on students and government staff from Ramadan fasting, while officials have also tried to encourage locals in Xinjiang not to wear Islamic veils.
The Karamay restrictions are "a typical discriminatory measure...which add to an increasing confrontation between Uighurs and Beijing," Dilxat Raxit, a spokesman for the exiled World Uyghur Congress (WUC), said in a statement to AFP.
The report came days after the government-appointed head of the largest mosque in China, in one of the region's oldest cities, Kashgar, was killed after leading morning prayers.
China announced a year-long terrorism crackdown following a deadly bombing attack in Xinjiang's capital Urumqi in May, and hundreds of alleged terrorists have been arrested.
Security on public transport has also been tightened.
The Karamay ban applies during a sports competition ending on August 20 the report said.
Authorities in Urumqi last month banned bus passengers from carrying a range of items including cigarette lighters and yogurt, state media said.
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