The First Hospital of China Medical University in the northeastern city of Shenyang said Liu's tumour has grown and his liver is bleeding.
The hospital said in a statement on its website that it is preparing for the possibility of taking the 61-year-old democracy advocate into emergency care if necessary, adding that "Liu's family members have been informed of the above circumstances".
China has faced international pressure to grant its most prominent dissident complete freedom and let him go abroad, but Chinese doctors said over the weekend that Liu was too sick to travel.
But two foreign physicians, American oncology expert Joseph Herman from the University of Texas' MD Anderson Cancer Center and German doctor Markus Buchler of Heidelberg University, visited Liu on Saturday and said he could still leave the country.
But the foreign doctors warned in a statement that "the medical evacuation would have to take place as quickly as possible".
Rights groups question motive
Liu and his wife, Liu Xia, want him to get treatment abroad. Human rights activists said the hospital's latest statement shows the authorities are dragging their feet.
"As Liu Xiaobo is in late-stage cancer, his conditions can go worse any time," Amnesty International's China researcher Patrick Poon told AFP.
Instead of issuing statements about his condition, Poon said, "the Chinese authorities have no other choice but to respect Liu Xiaobo's wish to leave the country for treatment".
Hu Jia, a Beijing-based activist and friend of Liu's, said the statement is a delay tactic.
"This is a way of slowing down the process. It doesn't show the patient's situation has deteriorated to the point of falling off a cliff," Hu said.
"I'm not saying it's not accurate, but the official purpose of today's statement might be to respond to the foreign experts' conclusions... as a way of emphasising the deterioration of the disease," he said.
Hu voiced concerns that if there is further delay, "Xiaobo may fall into a vegetative coma state, until he eventually cannot get free".
Beijing has come under fire from human rights groups over its treatment of Liu and for waiting until he was diagnosed with terminal liver cancer in late May to release him from prison on medical parole.
Liu was arrested in 2008 after co-writing Charter 08, a bold petition that called for the protection of basic human rights and reform of China's one-party Communist system.
He was sentenced to 11 years in prison in December 2009 for "subversion". At the Nobel Peace Prize ceremony in Oslo in 2010, he was represented by an empty chair.
