An investigation into tainted baby milk formula that has already sickened hundreds of children in China could reveal more illnesses, China's Health Ministry warned Tuesday.

More than 1,200 children have fallen ill with kidney stones and serious urinary tract problems because of contaminated baby formula. Fifty of those children are in serious condition, while two have already died.

Health ministry officials said medical agencies are preparing to deal with more cases, according to a report from Xinhua news agency.

Chinese police have arrested two brothers with the surname Geng who run a milk collection centre in Hebei province. The pair are accused of deliberately adding a toxic chemical to the milk that was then supplied to the largest baby formula producer in China.

The company responsible for producing the tainted formula, Sanlu Group, has apologized for the error.

Fonterra, a New Zealand dairy farmers' co-operative that owns 43 per cent of Sanlu, apparently warned the Chinese firm to re-call the products several weeks ago, according to the CBC's Anthony Germaine, reporting from China.

Tests had shown the formula contained melamine — the same chemical used in fire retardants and other industrial products that was also found in pet food exported by China, which last year killed hundreds of cats and dogs in Canada and the United States.

Melamine reportedly boosted the appearance of protein in the baby formula, and is what doctors have said could be causing kidney stones and other ailments in the babies who consumed it.

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.

With files from the Associated Press