China's General Administration of Quality Supervision, Inspection and Quarantine said on Saturday that of 1,176 dairy production companies vetted for new licences, 426 producers outright failed to pass the renewal inspection and another 107 were ordered to suspend production to improve their operations.

The General Administration warned milk product makers that failed to pass the quality drive not to flout the law and secretly resume production.

"Intensify law enforcement and oversight of the businesses that failed to pass scrutiny or were ordered to cease production and clean up," said the agency in a statement, "Production without a licence will be strictly punished according to the law."

China's food sector has been beset by poisonings and toxin scandals that have repeatedly shaken consumer confidence, and the fast-growing but fragmented dairy sector has been at the heart of those worries.

In 2008, at least six children died and nearly 300,000 fell ill from powdered milk laced with melamine, an industrial chemical added to low quality or diluted milk to fool inspectors by giving misleadingly high readings for protein levels.

Earlier this year, Chinese quality authorities sought to calm renewed public alarm after reports that some manufacturers had illegally added a leather protein powder to dairy products in an effort to cheat protein-content checks.

Subsequently, the national quality regulator started reviewing all dairy producers.

As well, a recent scare about the use of illegal additives in pig feed has shaken Henan Shuanghui Investment & Development Co Ltd, the country's top meat processor.

It remains unclear how many of the dairy producers that failed the inspection will eventually win back production approval.

The government has been trying to consolidate the industry so that it has fewer but larger players, and a licensing crackdown will be used to eliminate a number of smaller companies, the China Daily reported on Thursday.