WELLINGTON, NZ - NEW Zealand dairy giant Fonterra said on Monday that contaminated milk powder from its Chinese joint venture company Sanlu Group, which has killed two infants, was the result of sabotage.

The company also said it knew of the contamination in early Aug and wanted an immediate recall but Sanlu had to abide by Chinese rules.

Fonterra chief executive Mr Andrew Ferrier, speaking to New Zealand reporters by videolink from Singapore, said an unknown third party had put the banned chemical melamine into raw milk supplied to Sanlu.

The possibility of contamination during the production, storage and sales process had been excluded.

'In this case we frankly have sabotage of a product,' Mr Ferrier said. 'Our hearts go out to the parents and the infants who were affected.'

Chinese media reported on Monday that a second baby has died from drinking the contaminated milk powder, while the number of babies sickened has risen to about 580.

The Sanlu board, which includes three Fonterra directors, was first told on Aug 2 there was a problem with contaminated infant milk formula, but the public recall only began last Thursday as Sanlu worked through Chinese rules.

'We together with Sanlu have done everything that we possibly could to get the product off the shelf,' Mr Ferrier said.

Asked why Fonterra did not go public earlier about the contamination, he said it would have been irresponsible for Sanlu not to have followed the guidelines of Chinese authorities. Fonterra has a 43 per cent stake in Sanlu.

'I can look myself in the mirror and say Fonterra acted absolutely responsibly in this one. If you don't follow the rules of an individual market place then I think you are getting irresponsible.

'We as a minority shareholder had to continue to push Sanlu. Sanlu had to work with their own government to follow the procedures that they were given,' he said.

New Zealand Prime Minister Ms Helen Clark said New Zealand 'blew the whistle' on the continued sale of the milk powder after the local Chinese authorities refused to act.

Ms Clark said she first learned about the problem on Sept 5. Three days later, she ordered officials to inform authorities in Beijing, bypassing the local government.

'As you can imagine, when the New Zealand government blew the whistle in Beijing, a very heavy hand then descended on the local authorities,' she 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. That is never what we would do in New Zealand.' Mr Ferrier said Sanlu bought raw milk from third parties 'who were putting what appears to be melamine in the milk'.

A total of 19 people have so far been detained in connection with the probe in China. Mr Ferrier said they were not Sanlu staff but were third parties further down the supply chain.

He cautioned 'don't speculate on stuff like this' to a question whether the timing of the Olympics was a factor in the way the issue had been handled.