In Gansu province, the quality control agency said tests of the milk powder taken from a dairy plant indicated up to 500 times the maximum allowed level of the toxic material was found, China's state-run news agency, Xinhua, reported Friday.
Most of the contaminated milk powder, used in the production of dairy products such as ice cream, was still being processed and hadn't entered the market, officials said.
Melamine is a synthetic material used in producing plastics such as Formica, and for making super strength concrete. But because of its high nitrogen content it has been used as an adulterate for animal feeds and milk products to increase their apparent protein content.
Police said about 38 tons of raw materials were bought in China's Hebei province, the source of the 2008 toxic baby formula scandal, in which six babies died and 300,000 became ill.
Police said they also traced the source of the milk powder to Dongyuan Dairy Factory in nearby Qinghai province. A factory employee sent three samples of milk powder to Gansu's quality control agency to test for melamine content in June, Xinhua reported.
The bureau called police when test results indicated the samples had excessive levels of melamine. The owner and production director of Dongyuan Dairy Factory have been detained.
Meanwhile, authorities in Jilin province also were testing samples of milk powder suspected of having high levels of melamine, Xinhua said. Jilin's provincial quality control bureau said it also would start a general check on dairy products in the province.