U.S. Secretary of State Hillary Rodham Clinton says Myanmar will lose the trust of the international community unless it releases its political prisoners and opens dialogue with the opposition.
She also called on the government to address growing concerns about weapons proliferation.
Myanmar held elections late last year, officially handing power to a civilian administration after a half-century of military rule and releasing pro-democracy leader Aung San Suu Kyi from house arrest.
But many say the changes are cosmetic and the army still holds sway.
"We look to the government to unconditionally release the more than 2,000 political prisoners who continue to languish in prison," Clinton told representatives from 10 Southeast Asian nations gathering in Indonesia.
Myanmar, also known as Burma, should also conduct meaningful and inclusive dialogue with the political opposition and ethnic minorities, she said.
Last year, U.S. officials said a North Korean ship, suspected of carrying weapons or missile heads, was intercepted as it headed to Myanmar.
That raised fears the country has nuclear ambitions.
Clinton called on the government to "address growing concerns on non-proliferation by committing to respect and adhere to relevant UN Security Council Resolutions."
"The choice is clear," she said. "They can take these steps and gain back the confidence of their people and the trust of the international community. Or they can continue down the path they've been on."
Clinton also signaled subtle disapproval of efforts by Mynamar to assume ASEAN's chairmanship in 2014, as is now being discussed.
"We trust that ASEAN members will gauge whether a potential chair can advance the organization's credibility and leadership role in the region," she said.
The Obama administration has sought to engage Myanmar to improve conditions, but the policy has produced little concrete results and has not eased sanctions on the country.
Myanmar came under military rule in 1962 and has brutally suppressed political dissent since then. Suu Kyi's National League for Democracy swept 1990 elections but was barred from taking power.