The lawsuit came after the Defence Department said that China's biggest smartphone maker was affiliated with the People's Liberation Army.
Xiaomi dubbed the blacklisting "unconstitutional" and is asking a court to reverse the designation, which was made in the waning days of the Trump administration.
"Xiaomi faces imminent, severe, and irreparable harm if the Designation remains in place and the restrictions take effect", the company said in the filing in the US district court of Columbia.
The lawsuit also named Defense Secretary Lloyd Austin and Treasury Secretary Janet Yellen as defendants. Under former President Donald Trump, the US targeted shedloads of Chinese tech companies citing national security.
Huawei Technologies, one of the biggest rivals to Xiaomi in smartphone market, was cut off from its key suppliers as a result of a series of restrictions imposed by the former administration.