Under Tsai's two terms as president, the self-ruled island has seen stepped-up warplanes and sea incursions from China -- which claims Taiwan as its territory to be claimed one day, by force if necessary.
Tsai -- who rejects that Taiwan is a part of China -- said that during her tenure, residents have shown the world "Taiwan's determination to defend itself".
"In the face of China's civil attacks and military threats, the people of Taiwan are calm and not aggressive, rational and not provocative," she said Saturday, the final day of her seventh year in office.
"War is not an option, and neither party can unilaterally change the status quo in a non-peaceful manner," she said.
"We will not be provocative, aggressive and we will definitely not yield under pressure."
Tsai's speech comes as Taiwan gears up for its next presidential election, to be held in January 2024.
The poll is widely viewed as a referendum on Tsai's handling of Taiwan's relations with China -- which has refused to meet her ruling Democratic Progressive Party (DPP) for talks because it views her as a separatist.
Due to the democratic island's term limits, 66-year-old Tsai will not be standing for election.
- Taiwan's 'Democracy' DNA -
The DPP has named Vice President William Lai as its presidential candidate.
He has been far more outspoken about independence than Tsai, saying in January that he considers Taiwan to already be a "sovereign country".
He will be facing off with the popular mayor of New Taipei City, Hou Yu-ih.
The 65-year-old former police chief was announced as the candidate for Taiwan's main opposition party Kuomintang (KMT) -- which traditionally favours warmer ties with China.
He hit back on Lai's earlier declaration that the next election is a choice "between democracy and authoritarianism".
"I want to say to everyone -- William Lai is wrong," Hou said during a KMT party rally Saturday.
He accused the vice president of trying to sow division in Taiwan through fearmongering.
"Freedom and democracy are already in our DNA... More than ever, we need to -- through dialogue and interaction -- find ways to lower chances of conflict and maintain stability in the region," he added.
Hou had in the past said he opposed independence, as well as the "one country, two systems" arrangement under which Hong Kong is governed as part of China.
Beijing has proposed the arrangement for Taiwan, but a majority of the Taiwanese people have rejected the model -- particularly after China crushed political freedoms in Hong Kong despite promising a degree of autonomy to the finance hub.
Beijing has said any move by Taiwan towards a formal declaration of independence would prompt a military response.
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