Toymaker Fisher Price is to recall almost one and a half million Chinese-made toys over fears that their paint contains too much lead.
An internal probe found the Chinese manufacturer had used a non-approved paint pigment, violating its safety standards, the company said.
The recall affects toys that have been on sale in the US and UK since May.
It is the latest in a series of safety scares involving goods - food, drugs and other products - made in China.
China has pledged to introduce tougher quality controls on products, but sought to stem international alarm over the latest incident by insisting that 99% of its exports are safe.
FISHER PRICE TOY RECALL
Mattel Inc, which owns Fisher Price, said the recall affected toys, including characters popular with young children such as Sesame Street's Big Bird and Elmo, and Nickelodeon's Dora the Explorer.
About 900,000 have been sold in the US with around half a million sold in the UK and elsewhere.
The company said that it was removing the products from shops and would intercept incoming shipments.
"We are still concluding the investigation, how it happened," Fisher Price's general manager, David Allmark, told the Associated Press news agency.
"But there will be a dramatic investigation on how this happened. We will learn from this," he said.
Lead is toxic and can pose a health risk to young children if ingested.
The US Consumer Product Safety Commission urged parents to remove the affected toys from their children and contact Fisher Price.
Other countries, including the UK, Mexico and Canada, are reported to be affected by the recall.
Almost 100,000 of the affected toys have been sold in the UK and Ireland, said Mattel UK.
Tainted products
China's Commerce Minister Bo Xilai insisted on Thursday that the country "attaches great importance to the quality and safety of its products".
"More than 99% of the products China exports are of good quality and are safe," he said in a statement on the ministry's website.
"We hope that the relevant sides will handle Chinese products in an objective, fair and rational manner. This should not impact on the normal development of trade".
Beijing has accused foreign media of exaggerating problems with Chinese products, but has admitted that safety standards need to improve.
In recent weeks, it has taken steps to show it is taking the issue of quality control seriously.
Earlier this month it closed down three companies and arrested several people involved in food and drug scandals that have caused alarm both at home and abroad.
It follows a series of scares in the US in recent months, involving products such as fish, seafood, toothpaste and tyres from China.
In June, toymaker RC2 recalled 1.5 million Chinese-made toy trains after they were found to be coated in paint containing lead.
Earlier this month, US President George W Bush set up a panel to look at the safety of food and other products imported into the US.
The White House denied the move was aimed specifically at China, saying it is important to check all imports.
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