Organisers said they were sure students invited to the Chinese Arts and Culture Centre in Stafford Park were safe, but that there was no way of knowing if anybody had interacted with people who had been travelling.
The event was set to take place this afternoon and would have included a host of traditional Chinese events, including dancing and a dragon.
Grace Tong, who organised the event, said: "The students are not sick, but you don't know who they've been around. Chinese social media was saying thousands of people took an aeroplane from China to here, and that's a big worry.
"There were 19 suspects cases in the UK, and because they all came back negative, we thought we might go ahead. We are disappointed, but it was better to be safe."
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Grace said that Chinese social media, the WeChat platform, was full of conversation about the virus, which has been confirmed to have killed 41 people and made more than 1,200 ill.
Three cases of the virus have been confirmed in France and the UK is investigating a number of suspected cases.
Officials are attempting to trace about 2,000 people who have flown to the UK from the Hubei province.
Work on the Telford Chinese New Year event started in December, and has ramped up in the last few weeks.
Organisers said that a similar event may be held in the coming weeks and months to make up for the cancellation.
"We were well prepared," Grace said.
Chinese New Year is becoming increasingly popular in the area, with multiple events held that regularly attract thousands of people.
Grace said: "I think it's becoming more popular because there are more Chinese students coming into this country. Also, Chinese culture is very interesting. Our costumes are so colourful and the dragon always attracts people. It's all different aspects of Chinese culture showcased, and people love it."
Organisers of Newport's Chinese New Year celebrations, set to be held on February 2, took to social media to confirm that its event will be going ahead.
They wrote: "Apparently there's a rumour going round in town that we need to clarify. While our hearts go out to the families in China suffering from this terrible virus, we must be clear that events in China do not impact on what happens here in Newport at our event.
"Our event will not be cancelled because of the current virus in China."