The flawed research could have led to a massive cull
Rural Affairs Secretary Margaret Beckett has come under pressure to apologise over the government's handling of the mix-up.
Two top-level inquiries will now try to find out how cow and sheep brain-tissue samples became mixed up at an Institute of Animal Health laboratory in Edinburgh.
Had the mistake not been uncovered, it could have sparked a major food scare and cost the British taxpayer billions of pounds.
Further research
"I was stunned when I heard about it," FSA chairman, Sir John Krebs, told the BBC. "It's a really serious setback for research in this area. Of course, the experiment was aimed at trying to find out if BSE was in sheep in the early 1990s; it's not related to the current situation."
Sir John called for more modern techniques to be introduced, which could lead to fast clinical tests for BSE.
Peter Ainsworth, the Conservative opposition spokesman on rural affairs, said: "It beggars belief that it took these scientists four years to work out that the sheep brains they were investigating for BSE were in fact cows' brains.
"This is not only a humiliating blow to the credibility of the Institute, but also a major setback to the vital task of restoring public confidence in our food."
He added: "Margaret Beckett should apologise for the underhand way in which this information was released, explain why it was decided to publish the findings at 1030 at night and sack whoever took this decision."
'Dreadful mistake'
The IAH study, which cost £217,000, looked at infected brain samples gathered in the early 1990s.
But just two days before the final research was due to be presented to the expert committee on BSE - the Spongiform Encephalopathy Advisory Committee (Seac) - it was discovered that tissue samples had been mixed up.
Seac chairman Professor Peter Smith said on Thursday: "It appears to have been a dreadful mistake. I think it's too early yet to conclude that the study was a complete waste of time, but it does look like that might be the case."
The scientists at the IAH were apparently conducting more than one study, and had prepared brain material from both sheep and cattle.
Brain paste
Professor Smith said: "Once it's a paste, a cow brain looks very like a sheep brain. That's no excuse, however - the samples should have been properly labelled - but you can't tell them apart just from their appearance.
"It's hard to come to any other conclusion than that a serious error was made."
The blunder came to light when DNA cross-checking was performed on samples sent to the Laboratory of the Government Chemist.
The FSA continues to advise that British lamb is safe to eat but said tests on current sheep flocks needed to be stepped urgently.
Huge cull
The research error is yet another embarrassing episode in the handling of the BSE crisis in Britain. However, ministers were unbowed by the latest revelations.
Rural affairs minister Elliot Morley said: "If anything, I think consumers should be reassured that the quality control checks showed there were flaws in the tests, and we would have been much more embarrassed as a government if we'd taken some very drastic action, in relation to sheep, on the basis of those flawed tests."
The government said last month that the UK's 20 million sheep and 20 million lambs might have to be destroyed if the initial findings of the IAH research were confirmed.
The precise details of went wrong will now be investigated by both the Institute of Animal Health and the Department for Environment, Food and Rural Affairs (Defra).