New Zealand dairy co-operative Fonterra recalled a batch of prenatal milk sold in China under its brand and manufactured by its Chinese partner San Lu using contaminated local raw milk, the company announced on Monday.

More than 1,250 babies are reported to have fallen ill after drinking baby milk produced by the San Lu Group, which is 43 per cent owned by Fonterra. The milk was contaminated with the toxic chemical melamine. At least two deaths have been reported.

San Lu has made a public apology and the government the northern Chinese Hebei province, where the company is based, announced that more than 10,000 tons of baby formula recalled in the contamination scandal would be destroyed.

Fonterra chief executive Andrew Ferrier said Monday that his company had urged San Lu at least one month ago to recall the contaminated baby formula, weeks before a full public recall was ordered.

Reports from Beijing said reasons for the delay were unclear, but speculation abounded that China's authorities may have wanted to cover up the scandal because of the Beijing Olympics. The Beijing authorities only acted after interventions by the New Zealand government last week, as local authorities failed to act.

Fonterra said from its Auckland headquarters that its Chinese subsidiary had made a voluntary recall of one batch of prenatal milk sold in China under the Anmum Materna brand name.

"This particular batch had been manufactured and distributed under licence by San Lu using what we believe to be contaminated local raw milk," a spokesman said. He said the batch had been distributed only in mainland China and none had been exported.

Fonterra said all other Anmum products and the associated Anlene brands sold in China had been produced using 100-per-cent imported milk from New Zealand and were free from any possibility of contamination with melamine from locally sourced milk.

They adhere to the strictest New Zealand and international standards, the spokesman said.

Fonterra is the world's biggest single exporter of dairy products, selling consumer goods and food service ingredients in 140 countries.

It paid 107 million US dollars for its stake in San Lu in 2006. Ferrier said at the time that San Lu had some of China's most modern milk processing facilities.

Two brothers from Hebei province, who are among 19 suspects detained in the wake of the scandal, have been arrested accused of delivering 3 tons of toxic milk a day to San Lu from their private milk collecting station, the Xinhua news agency said.

The older brother confessed to having spiked the milk with melamine to increase the milk's protein content. He said he lost money because San Lu repeatedly rejected his milk because of quality problems.