Liu, 61, was jailed for 11 years in 2009 for 'inciting subversion of state power' after he helped write a petition known as 'Charter 08' calling for sweeping political reforms.
He was recently moved from jail to a hospital to be treated for late-stage liver cancer.
The hospital, in the northeastern city of Shenyang, made the decision at the request of the family and in consultation with the doctors already treating him, the Shenyang Bureau of Justice said in a short statement on its website.
It provided no other details. Officials who picked up the telephone at the hospital said they were unaware of the case.
The US and German embassies in Beijing did not respond immediately to requests for comment.
The move comes ahead of President Xi Jinping's attendance at a summit of the Group of 20 nations in the German city of Hamburg on Friday and Saturday, a high-profile event where Xi will seek to project Chinese leadership on issues such as climate change and free trade. Diplomatic sources in Beijing say China has been nervous that the issue over the Nobel Peace Prize winner could overshadow Xi's appearance.
An open letter issued by a coalition of rights groups, including those representing Tibetans and Uighurs, on Wednesday urged G20 leaders to press China for the unconditional release of Liu and grant him freedom to travel wherever he wants.
The government has said Liu is being given the best care possible and that he is treated by renowned Chinese cancer experts.
However, a growing number of Western politicians and international rights activists have expressed concern about the quality of Liu's treatment and have said he should be given the choice to leave China if that was the best option.
United Nations High Commissioner for Human Rights Zeid Ra'ad al-Hussein has met Chinese officials regarding Liu, a spokeswomen said on Tuesday.
Chinese authorities told diplomats from Germany, the United States and the European Union on Friday that Liu could not be moved abroad due to his condition, sources briefed on the matter have told Reuters.
China's Foreign Ministry has so far dismissed concerns from other countries about Liu, at least publicly, saying it is an internal matter for China.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
Get Breaking news, live coverage, and Latest News from India and around the world on NDTV.com. Catch all the Live TV action on NDTV 24x7 and NDTV India. Like us on Facebook or follow us on Twitter and Instagram for latest news and live news updates.