Authorities cancelled all flights and trains from Sanya, known as "China's Hawaii", on Saturday, a day after 263 positive cases were confirmed.
Travellers must now present five negative PCR tests over seven days before being allowed to leave.
China is the only major economy to still follow a "zero Covid" policy.
The country has recorded fewer than 15,000 deaths since the pandemic began, according to Johns Hopkins University. However, there have been concerns about the impact of the strict rules, including mass testing and local lockdowns, on the economy.
The restrictions on Sanya, a city on the southern Hainan Island and a popular surfing destination, come during the peak tourist season.
Essential services such as supermarkets and pharmacies remain open, but entertainment venues have been closed since last week, AFP news agency reports.
Authorities have said they will ask hotels to offer a 50 per cent discount until restrictions are lifted.
Sanya is not the only city to have gone into lockdown in recent months. Around a million people in a suburb of Wuhan, the city in central China where Covid-19 was first recorded, faced fresh curbs last month after four asymptomatic cases were confirmed.
In June, meanwhile, Shanghai's 25 million residents finally emerged from a strict-two month lockdown.