The timing of the incident has raised fears that officials disguised the health risk to avoid a scandal during the Beijing Olympic Games in August.

Supplies from China's leading manufacturer of baby milk, Sanlu, were tainted by the addition of melamine, the company confirmed last week.

The chemical boosts protein readings but causes kidney stones and is being blamed for illness in at least 1,253 infants, according to the latest figures.

Fonterra, a New Zealand company which has a 43 per cent stake in Sanlu and three directors on its board, knew about the problem on Aug 2, it said.

The country's prime minister Helen Clark confirmed that the company had reported the matter to local Chinese officials, but pleas for a recall of the product fell on deaf ears.

It was only after Mrs Clark was informed of the impasse on Sept 5, and three days later notified the central Chinese government of what had happened, that action was taken.

Even so, it took until last Thursday before a recall of all milk distributed before Aug 6 was announced.

"They have been trying for weeks to get official recall and the local authorities in China would not do it," Mrs Clark said.

"At a local level ... I think the first inclination was to try and put a towel over it and deal with it without an official recall."

The Chinese ministry of health also says it was not informed until Sept 8, and has threatened punishment of those found responsible.

It said at the weekend that officials in Shijiazhuang, the city in Hebei province where Sanlu is based, had confirmed the contamination to provincial authorities on Sept 8 but knew about it at some point beforehand.

So far 19 people have been detained, including "middle men" who bought the milk from farmers and are accused of using the melamine to boost the content to protein standards demanded by Sanlu. A further 78 people are being questioned.

Mrs Clark suggested Fonterra had been "naive" in not going public before but said that the responsibility lay with local government officials.

"I think Fonterra, from the advice I have had, has behaved responsibly at all times, but it has been dealing in a political system at a local level in China where the inclination is to cover things up," she said. "But I have to say once we blew the whistle in Beijing, they moved very fast."

Andrew Ferrier, chief executive of Fonterra, said Sanlu had been victim of "sabotage" and that both companies had done their best to alert the public "within the rules", implying that they were blocked by local government.

"We as a minority shareholder had to continue to push Sanlu," he said. "Sanlu had to work with their own government to follow the procedures that they were given,"

He gave no further explanation for the cover-up, and refused to speculate on an Olympic connection. But China Digital Times, a website run by Xiao Qiang, a Chinese exile now based in California, has pointed out that it happened in the week before the opening of the Olympic Games, when the government was especially keen to control "bad news".

A document purporting to be a 21-point list of instructions for the media in advance of the Games issued by the propaganda department and leaked to The Daily Telegraph contained at number eight the words: "All food safety issues, such as cancer-causing mineral water, are off-limits".

The Chinese authorities deny they issued the list.