Dozens of Chinese babies are said to have died from malnutrition in the past year after being fed fake or inferior-quality baby milk powders.
Wen Jiabao says the manufacturers will face 'severe punishment'
Prime Minister Wen Jiabao said makers of the products would be severely punished, the China Daily paper said.
State officials have been sent to the city of Fuyang, in Anhui province, to investigate further.
Correspondents say the case highlights the widespread problem of counterfeit foodstuffs and medicines in China.
According to official media reports, up to 200 babies who were fed formula milk of little nutritional value were affected.
Local media said some of the babies developed what doctors called "big head disease", where infants' heads appear abnormally large in comparison to their bodies.
It was not clear of the counterfeit powder included any toxic ingredients, but some children were reported to have died within three days of being fed the fake milk.
Others were hospitalised when their parents realised they were ill. Fuyang's People's Hospital alone received more than 60 babies who had been fed fake milk formula, according to the Beijing News.
"My girl, the first child of mine, died when she was only four months old," said Zhang Linwei, from Wangzhuang Village in Fuyang.
Mr Zhang told China Central Television that he only realised his daughter was ill when she refused to drink any more powder.
"Before that, I thought my daughter's face was becoming fatter and fatter because she was fed well and grew fast," Mr Zhang said.
An analysis of one formula found it contained as little as
one-sixth the required amount of protein and other
nutrients needed for a baby's proper development, reports said.
Zhang Fangjun, a medical expert at Fuyang's Renmin Hospital, told the China Daily: "Drinking such fake milk powder is no different from drinking water."
"Such so-called milk powder cannot provide any nutrition for babies' growth," Mr Zhang said.