At least 50 to 60 infants have died after being fed fake milk powder in China's eastern province of Anhui since May, report agencies.
Authorities fear the toll could rise, with spurious powder also being found in Shandong, a neigbouring province.
Xinhua said an investigation is on, and five wholesalers of fake baby milk have been arrested. More than 170 infants in Anhui, mostly between three and five months old, have been affected, officials said.
An initial inquiry revealed that at least 45 different brands of substandard powder were on sale in Fuyang City, Anhui, produced by 141 factories across China, Xinhua said.
Local doctors said the fake milk was responsible for the worst malnourishment cases they have seen in 20 years.
Local media in Fuyang printed pictures of one six-month-old baby boy who weighed less than he did at birth. They said some of the babies developed what doctors called "big head disease", where infants' heads appear abnormally large.
Premier Wen Jiabao has vowed a thorough investigation and severe punishment for those found guilty.
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