"During these eight months, the company did not inform the government and did not take proper measures, therefore making the situation worse," China Central Television reported, citing an investigation by the State Council, China's Cabinet.
Melamine, used to make plastics and fertilizer, has been found in infant formula and other milk products from 22 of China's dairy companies. Suppliers trying to cut costs are believed to have added it to watered-down milk because its high nitrogen content masks the resulting protein deficiency.
The number of sick children reported by the Health Ministry has jumped from 6,200 to nearly 53,000. Of those, 12,892 remain hospitalized, with 104 of them in serious condition. Another 39,965 children have been treated and released.
The ministry did not explain the sudden increase in the number of cases but it suggested health officials were combing through hospital records from May through August to trace the origins of the contamination.
Baby formula and other milk products have been pulled from stores around the country and Chinese dairy products, including baby formula, milk candy and ice cream, have been recalled or banned in Japan, Singapore, Malaysia, Brunei and Hong Kong.
In a reflection of the breakdown in supervision of the dairy industry, Sanlu and several other leading companies embroiled in the scandal had been given inspection-free status by the food safety watchdog.
That privilege has since been rescinded, but the World Health Organization stressed Monday it was only a first step and urged closer monitoring.
Quality issues can crop up at any point in the supply chain, from the farm to the retail outlet, said WHO China representative Hans Troedsson, adding: "It's clearly something that is not acceptable and needs to be rectified and corrected."
The resignation of Li Changjiang, who headed the General Administration of Quality Supervision, Inspection and Quarantine since 2001, comes a year after he and the government promised to overhaul the system in response to a series of product safety scares.
New regulations and procedures were introduced in an attempt to restore consumer confidence and preserve export markets after a string of recalls involving tainted toothpaste, faulty tires, contaminated seafood and in March 2007, pet food containing melamine that was blamed for the deaths of dogs and cats in the United States.
A series of improvements were announced from establishing a national food recall system to random inspections to increasing exchanges with quality inspectors in other countries.
In an indication of Beijing's determination to improve product safety, the government in July 2007 executed the disgraced chief of China's food and drug agency, who was convicted of accepting bribes in exchange for letting fake medicine into the domestic market.
The official Xinhua News Agency said Li stepped down with the approval of China's Cabinet.
The agency "failed to conduct a proper inspection in this case, and Li Changjiang bears responsibility for this. The State Council has accepted his resignation," China Central Television reported.
In addition, the top official from Shijiazhuang, where Sanlu is based, was fired Monday for "failing to deal with the case properly," the official Xinhua News Agency said. Party secretary Wu Xianguo is the latest in a string of city officials who have been sacked over the scandal.
The discovery of the tainted milk is especially damaging because Sanlu was considered one of the most reputable brands in China, winning an industry award in January and being featured on state television last fall as a domestic company with stringent quality controls.
WHO was having discussions with Chinese officials on how to strengthen its food quality system, said Troedsson, its country representative. Local authorities need increased training to create a "more robust reporting system," he said.
"It is important to know if information was withheld, where and why it was withheld," he said. "Was it ignorance by provincial authorities or was it that they neglected to report it? Because if it was ignorance there is a need to have much better training and education ... If it is neglect then it is, of course, more serious."
