Work and pensions minister Mel Stride said the attack was on a system run by an outside firm but was still a "very significant matter".
Former minister Tobias Ellwood said a third-party payroll system used by the defence ministry had been targeted and bore the hallmarks of a Chinese cyberattack.
"Targeting the names of the payroll system and service personnel's bank details, this does point to China because it can be as part of a plan, a strategy to see who might be coerced,", the ex-soldier and former chairman of a parliamentary defence committee, told BBC radio.
The data breach is believed to have also included in some cases personal addresses of serving and former armed forces members.
Stride told Sky News television, which first reported the breach, that the defence ministry had acted "very swiftly" to take the database off line.
But the government was not currently pointing the finger at Beijing, he said.
"That is an assumption.... we are not saying that at this precise moment," he added.
The data breach comes after the UK government in March accused China of targeting the Electoral Commission watchdog and the email accounts of lawmakers.
The Electoral Commission attack was identified in October 2022, but the hackers had first been able to access the commission's systems for more than a year.
China hit back the saying the claims were "malicious slander".
Last June, Google subsidiary Mandiant said online attackers with clear links to China were behind a vast cyberespionage campaign targeting government agencies of interest to Beijing.
Washington has frequently accused Beijing of cyberattacks against US targets.
Last month two British men, including a former UK parliamentary researcher, appeared in court in London accused of spying for China.
Defence Secretary Grant Shapps will give further details of the Ministry of Defence data breach to parliament later on Tuesday.
har/phz/ach
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