The uncle of fifteen-month-old Tian Yaowen from Henan province, who is suffering from kidney stones, shows a bag of Sanlu infant formula in a hospital in Wuhan in central China's Hubei province on Saturday (Associated Press)

Chinese police arrested two brothers in the infant formula scandal that has killed two babies and sickened more than 1,200 others, officials and state media reported Monday.

Investigators suspect the brothers, who run a milk collection centre in Hebei province, first added water to increase the milk's volume fraudulently and then added melamine to boost the protein level, the official Xinhua News Agency said.

The milk was then sold to a company that made infant formula. Melamine is rich in nitrogen and standard tests for protein in food ingredients measure nitrogen levels.

So far, two infant deaths have been linked to contaminated milk powder, 1,253 babies have been sickened and 340 treated in hospital, Ma Xiaowei, vice-health minister, told a news conference.

The Canadian Food Inspection Agency and Health Canada have advised consumers to avoid purchasing infant formula originating from China.

The product is not approved for sale in Canada, but officials say it could have been illegally imported and may be for sale in some stores that carry ethnic foods.

Formula made by China's Sanlu Group

The company that produced the infant formula, Sanlu Group Co., is China's biggest maker of powdered milk and is 43 per cent owned by a New Zealand dairy farmers' co-operative, Fonterra.

On Sunday, Fonterra, the world's biggest milk trader, said it had urged Sanlu to recall the product as early as six weeks ago.

However, Sanlu did not order a recall until last Thursday, even though the company had received complaints as early as March and its own tests in August found the milk powder contained melamine.

New Zealand Prime Minister Helen Clark said Monday she learned of the problem Sept. 5 and within days had ordered officials to directly inform senior authorities in Beijing. At the time, provincial Chinese officials appeared to be dragging their feet.

"We were the whistleblowers and they leapt in and ensured there was action on the ground," Clark said. "At a local level ... I think the first inclination was to try and put a towel over it and deal with it without an official recall."

Chinese officials have defended their response to the country's latest product safety disaster and blamed Sanlu Group for delays in warning the public.

Authorities have seized 2,176 tonnes of milk powder from a Sanlu warehouse and recalled 8,218 tonnes already sent to market, Xinhua said. It said all would be destroyed.

Inspectors will being checking China's 175 baby milk factories for a report that will be released within two days, said Li Changjiang, head of the safety watchdog.

The incident is an embarrassing failure for China's product safety system, which was overhauled in an attempt to restore consumer confidence after a string of recalls and warnings abroad over tainted toothpaste, faulty tires and other goods.

In 2007, thousands of pets in the U.S. and several in Canada died after eating pet food contaminated with melamine. The pet food, made by Toronto-based Menu Foods, used wheat gluten that originated in China.