Senior officials gave the order to Sanlu, the firm whose poisoned milk powder is said to be responsible for at least four deaths and illness in almost 53,000 infants.

It was passed on during three meetings at which the company told officials in the city of Shijiazhuang, where the company is based, of the extent of the crisis.

Present were local representatives of the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ), China's national product safety watchdog.

AQSIQ had already carried complaints on its website from a doctor concerned about the numbers of children who had drunk Sanlu suffering from kidney stones.

Yet despite Sanlu's warnings that its baby formula was contaminated with the chemical melamine, no recall notice was issued to consumers.

The central government had issued orders to suppress "bad news", including about health scares, during the period of the Olympic Games, which were due to start the same week.

But the authorities also said they were concerned about the effect on "social stability", according to a source briefed by those present. "Social instability" is a catch-all phrase used by the Chinese government for public protest.

The details of the meetings are the first confirmation that the cover-up was deliberate policy and not bureaucratic inertia.

After finally being exposed, the scandal spread to other major Chinese firms and liquid milk. Supermarket shelves have been cleared of products made from Chinese milk from Taiwan to East Africa, while Tesco yesterday said it was recalling a Chinese-made sweet, White Rabbit, from stores in Britain.

The details also raise new questions for Fonterra, the New Zealand company which has a 43 per cent stake in Sanlu and three of seven directors on the board, and which had representatives in the meetings.

Andrew Ferrier, its chief executive, said when the scandal broke that it would have been "irresponsible" not to work "within the guidelines" set by the Chinese authorities.

Fonterra's experience is a dramatic warning of the dangers faced by western firms doing business in China.

The company, the world's biggest trader of dairy products and best known in Britain for Anchor butter, wrote off £75 million, two-thirds of the value of its £107-million investment in Sanlu.

"Sanlu has been damaged very badly by this tragedy," Mr Ferrier said. "The brand cannot be reconstructed."

Fonterra says that despite complaints to Sanlu about children suffering kidney stones as far back as December it knew nothing was wrong until it was informed by its partners on August 2.

The three meetings followed, but a Fonterra executive also mentioned the crisis to a New Zealand diplomat at a drinks party on August 14, and provided an official account at a meeting on August 22, two days before the Olympics ended. The New Zealand ambassador asked for more details before passing on a report to Wellington on August 29.

The whistle was finally blown by the New Zealand government on September 9.

In all, it took six weeks between Fonterra discovering the contamination and a recall being issued.

Paul French, director of Access Asia, a Shanghai-based consumer consultancy, said too many Western executives in China believed advice in business books that they must avoid making their local partners "lose face" at all costs.

But in an internal report to staff, Mr Ferrier defended the decision to "work within the system", saying that ultimately it succeeded in bringing about a recall.