WASHINGTON (Reuters) - The coordinator for U.S. sanctions policy indicated on Wednesday that more Chinese firms were under U.S. investigation for suspected breaches of sanctions on North Korea and Chinese banks and firms should understand that dealing with North Korea was "risky."

Asked at a congressional hearing if other Chinese firms were under investigation after the United States imposed sanctions on a Chinese industrial machinery wholesale firm on Monday, Daniel Fried, coordinator for sanctions policy at the U.S. State Department, said he "wouldn't argue" with the suggestion.

China said on Tuesday it was opposed to any country using its own laws to carry out "long arm jurisdiction," after the United States sanctioned Dandong Hongxiang Industrial Development Co and four of its executives under U.S. regulations targeting proliferators of weapons of mass destruction.

The United States took the step after North Korea conducted its fifth and largest nuclear test on Sept. 9. Discussions are also under way on a possible new U.N. sanctions resolution on North Korea.

The United States accused the Chinese firm of acting on behalf of North Korea's Korea Kwangson Banking Corp (KKBC), which has been under U.S. and U.N. sanctions for supporting proliferation of such weapons.

Fried declined to name any other Chinese firm under investigation but told the Senate Foreign Relations Committee:

"We are actively looking at all possible targets ... Clearly our actions on Monday indicate that we are willing to sanction Chinese companies who are evading U.S. and U.N. sanctions."

Fried said it would be best if China itself came to the conclusion that it needed to put increased pressure on North Korea.

"It would also be useful if Chinese banks and companies understood that increasingly, dealing with North Korean companies, especially those that are sanctioned is going to be risky; frankly not worth it."

Daniel Russel, the senior U.S. diplomat for East Asia, told the same hearing there was much more that China could be doing in terms of sanctions on North Korea. He said North Korea coal exports were a focus of current sanctions discussions with China.

"We recognize that changing Chinese behaviour is a prerequisite for changing North Korea’s behavior," Russel said.

(Reporting by David Brunnstrom; Editing by Chizu Nomiyama and Andrea Ricci)