At issue is the chemical dicyandiamide, or DCD.
"The detection of these small DCD residues poses no food safety risk. DCD itself is not poisonous," Ministry for Primary Industries Director General Wayne McNee said in a statement Saturday.
The ministry said DCD has been used by less than 5 percent of New Zealand's dairy farmers who applied it twice a year. It is used in pastures to reduce greenhouse gas emissions and the leaching of nitrogen into waterways.
The ministry's statement, translated into Chinese and posted on its website, stressed that DCD isn't melamine. In China in 2008, at least six infants died and thousands of people became sick from melamine-contaminated milk.
"It is a different chemical and has none of the toxicity that melamine has," the ministry statement said.
Many Chinese consumers have relied on imported milk powder since the 2008 melamine incident, says a report in China's Global Times newspaper. Milk power from New Zealand accounts for about 75 percent of milk powder imports.
Foreign milk powder brands that use New Zealand milk were still on sale in Beijing and other major cities, the newspaper reported Sunday.
Fonterra, New Zealand's largest dairy, in a statement Sunday aimed at reassuring global customers, said, "New Zealand dairy products are safe to consume."
Fonterra Co-operative Group Limited Chief Executive Theo Spierings said that "the minute traces (of DCD) detected were around 100 times lower than acceptable levels under European food safety limits."
"The bottom line? Our products are safe. Customers can rest assured," Spierings said.
Still, Malaysia's Health Ministry raised New Zealand dairy products to an alert level 4, thus requiring every dairy consignment from New Zealand passing through entry points in Malaysia to be sampled.
"We are very concerned and have put these products on high alert," said Health Minister Datuk Seri Liow Tiong Lai, The Star newspaper reports.
While DCD hasn't been proven to cause cancer, the minister said, it is a contaminant.
Taiwan's Food and Drug Administration said Saturday that it would check shipments of baby milk formula from New Zealand. In 2012, New Zealand accounted for 78.9 percent of Taiwan's adult powdered milk imports in 2012 and 21.7 percent of its total baby milk formula imports.
Separately, Fonterra announced Friday that Chief Financial Officer Jonathan Mason would be retiring in the next six months.