Italy has not done enough to ensure contaminated mozzarella cheese does not reach consumers, the European Commission has said.
It has warned Italy to take further urgent action, or risk a ban on exports of the cheese from the Campania region.
Higher than permitted levels of dioxin, which can cause cancer, had been found at some mozzarella producers.
Italy says it has traced the farms at the source of the contamination, and destroyed their milk.
But in a statement, the European Commission said those measures did not go far enough:
"No recall of product potentially contaminated has been carried out, and the surveillance programme on the farms of the Campania region is still too limited."
The statement went on to say that if further action was inadequate, the Commission would consider proposing "safeguard measures" for dairy products originating from the Campania region.
Correspondents say that would normally mean an export ban.
Japan and South Korea have already imposed an import ban on the cheese.
Italy says it has contained the problem, and insists there is no food scare.
Officials told the Commission that 130 mozzarella production sites have been checked and dioxins above the EU limit were found at 25 of them.
The buffalo farms supplying those sites were traced and the milk was destroyed.
Eating pieces of the cheese for the cameras, the Italian agriculture minister, Paolo De Castro, told journalists there was no health risk, and blamed the scare on a media frenzy.
"The checks have revealed a limited number of cases, 83 out of 1,900 (dairy farms), and the produce has been seized," he said.
The contamination emerged last week, when buffalo herds in the Naples area of Campania region showed milk contamination after spot checks.
Police are investigating whether feed given to herds around the city of Naples was tainted.
It's believed the cause is toxic waste, illegally dumped by criminals on agricultural land used for pasture.
The Naples area has a chronic waste-management problem, made worse by the dumping of illegal industrial waste, much of it toxic, transported from Italy's industrial north.
Mozzarella production is big business in Italy, with herds of a quarter of a million buffalo producing a total of 33,000 tonnes of mozzarella cheese each year, 16% of which is exported.