In the past 40 years, China has undergone a rapid urbanization process which has led to a significant contradiction between the desire to develop modern urban spaces and the need to protect historic urban sites. Urban construction has brought not only the destruction of the physical space of the historic urban sites, but also the fragmentation of the natural landscape and its structural disconnection to the historic urban landscape. Ancient Chinese planners had their own thoughts regarding urban construction and the specific patterns of the urban landscape. The urban landscape of Chinese historic cities focuses predominantly on the structural relationship to its neighborhood. This paper aims to explore the value and character of the historic landscape of the ancient city, finding the key causes of its decline in the process of urbanization. The World Cultural Heritage city Pingyao is taken as a case study. Firstly, an analysis of its historical spatial structure and urban planning ideas of the ancient city of Pingyao using ancient maps and historical documents is presented. Then, a quantitative analysis of the urban space expansion in Pingyao city from 1989 to 2016 is conducted and its land use structure further analyzed. Additionally, four editions of the urban master plan in Pingyao have comprehensively shown that modern urban construction and planning tend to focus more on urban economic functions and social needs. In contrast, ancient urban planning relied on the spatial connection between urban space and its natural environment to construct a higher urban cultural connotation. As a result, the different development mode between modern urbanization and construction of ancient cities could be the key reason for the decline of spatial structure and landscape fragmentation of historical cities in China. With respect to the experience and thoughts of Pingyao’s ancient urban planning and construction, technical ideas and suggestions are put forward as reference in future spatial planning for Pingyao’s urban development and cultural protection. Our findings have been incorporated into the relevant sections of the spatial planning of Pingyao.