The island's Criminal Investigation Bureau said Thursday has detected more than 1,700 fraud cases on since last year with total losses worth more than NT$247m (£5.9m; $7.9m), local media report.
The move will cut access for some three million users in Taiwan to the app - an Instagram and TikTok-like platform with built-in shopping features. However, it is not clear when the order will come into effect.
The BBC has contacted Xiaohongshu and the Taiwanese bureau for comment.
Taiwan news outlets said that the app is being banned over a spate of fraud cases and after failing to meet data security standards, putting users at risk.
The app's operators do not have a local office and has not responded to regulators' request to submit a plan to improve its cyber-security measures, Taipei Times quoted Taiwan's interior minister as saying.
Xiaohongshu, which launched in 2013, has hundreds of millions of users worldwide, and is especially popular in Asia. The app's user-base grew this year as users in America sought alternatives to TikTok after the government threatened to ban the Chinese platform in the US.
Taiwan's temporary ban comes as concerns grow over Beijing's use of social media to cultivate more favourable views of China and to spread disinformation.
Beijing views Taiwan as a breakaway province that will eventually be returned to Chinese control. China has not ruled out the use of force to achieve this goal.
Xiaohongshu has also faced pressure from Chinese regulators, which said in September that it has called for "strict punishment" on the firm's bosses over "negative" posts on its platform.
Separately, Russian authorities banned social media platform Snapchat over concerns that it was used to conduct terrorist activities and to commit fraud, local media reported on Thursday.
The state internet regulator Roskomnadzor also set restrictions on Apple's video call service, FaceTime.
The BBC has contacted Snap and Apple for comment.
Earlier in the week, the agency banned popular multiplayer gaming platform Roblox over concerns about safety and extremism.
