The New Fourth Army Incident is significant as the end of real cooperation between the Nationalists and Communists. Today, ROC and PRC historians view the New Fourth Army Incident differently. From the ROC point of view, the Communists attacked first and it was a punishment for the Communist insubordination; from the PRC view, it was Nationalist treachery.

On January 5, the Communist forces were surrounded in Maolin Township by a Nationalist force of 80,000 led by Shangguan Yunxiang and attacked days later. After days of fighting, heavy losses – including many civilian workers who staffed the army's political headquarters – were inflicted on the New Fourth Army due to the overwhelming numbers of Nationalist troops. On January 13, Ye Ting, wanting to save his men, went to Shangguan Yunxiang's headquarters to negotiate terms. Upon arrival, Ye was detained. The New Fourth Army's political commissar Xiang Ying was killed, and only 2,000 people, led by Huang Huoxing and Fu Qiutao, were able to break out.

Chiang Kai-shek ordered the New Fourth Army disbanded on January 17, and sent Ye Ting to a military tribunal. However, on January 20, the Chinese Communist Party in Yan'an ordered the reorganization of the army. Chen Yi was the new army commander. Liu Shaoqi was the political commissar. The new headquarters was in Jiangsu, which was now the general headquarters for the New Fourth Army and the Eighth Route Army. Together, they comprised seven divisions and one independent brigade, totalling over 90,000 troops.

Because of this incident, according to the Chinese Communist Party, the Nationalist Party of China was criticized for creating internal strife when the Chinese were supposed to be united against the Japanese; the Chinese Communist Party, on the other hand, was seen as heroes at the vanguard of the fight against the Japanese and Nationalist treachery. Although as a result of this incident, the Communist Party lost possession of the lands south of Yangtze River, it drew the party support from the population, which strengthened their foundations north of Yangtze River. According to the Nationalist Party, this incident was retribution to numerous occasions of treachery and harassment by the New Fourth Army.