Milk powder produced by a dairy factory in China's Qinghai Province has been found to contain the industrial chemical melamine over 500 times higher than the amount allowed, The Beijing News reported.

The Qinghai factory bought most of its problematic supply from Hebei Province, where the melamine contaminated milk products scandal broke in 2008 involving the now defunct Sanlu Group.

Milk laced with melamine led to the deaths of six babies and sickened 300,000 others in 2008, who had been fed with baby formula made from tainted milk. The scandal sparked public anger over inferior quality control systems and questions of business ethics.

The Qinghai-based Donghuan Dairy factory sent its milk powder samples to be tested in neighboring Gansu Province, where three batches were found in late June to contain melamine exceeding the standard limit by 86%, 559% and 130% respectively.

The Qinghai quality supervision authorities in early July confiscated 38 tons of the tainted milk powder products after being alerted by Gansu authorities. The factory, where 64 tons of materials and 12 tons of milk powder were found to be tainted with melamine, has now been sealed.

Police have arrested one suspect in the case, who admitted the milk powder products were mostly sold to the eastern provinces of Jiangsu and Zhejiang. The suspect, surnamed Sun, also revealed that they sent the samples for testing in Gansu Province so that they could adjust the amount of melamine in the milk powder to both evade government inspection and make the products appear to contain sufficient amounts of protein.

Meanwhile, authorities in Jilin Province have confiscated more than 1,000 packages of problematic milk powder and are conducting an investigation.

Melamine can cause kidney stones, and is used to make plastics, fertilisers and concrete. Its high nitrogen content allows protein levels to appear higher when added to milk or animal feed, allowing traders to disguise substandard products.