Hepatitis B virus (HBV) covalently closed circular DNA (cccDNA) contributes to viral persistence and recurrence, however, how the host innate immune system responds to cccDNA is still less known. Here, based on cccDNA-hepatic proteins interaction profiling, DNA sensor ATP-binding cassette subfamily F member 1 (ABCF1) is identified as a novel cccDNA-binding protein and host restriction factor for HBV replication. Mechanistically, ABCF1 recognizes cccDNA by KKx4 motif and forms phase-separated condensates by the poly-glutamine (PolyQ) region of the N-terminal intrinsically disordered low-complexity domain (LCD). Subsequently, ABCF1-cccDNA phase separation not only activates the type I/III interferon (IFN-I/III) pathway but also prevents Pol II accumulation on cccDNA to inhibit HBV transcription. In turn, to sustain viral replication, HBV reduces ABCF1 expression by HBx-mediated ubiquitination and degradation of SRY-box transcription factor 4(SOX4), leading to defects in SOX4-mediated upregulation of ABCF1 transcription. Taken together, the study shows that ABCF1 interacts with cccDNA to form phase separation that dually drives innate immune signaling and HBV transcriptional inhibition. These findings shed new light on the understanding of host defense against cccDNA and provide a novel promising therapeutic strategy for HBV infection.