A Chinese dairy has been ordered to suspend production after a cancer-causing toxin was found in its infant formula, China's quality watchdog said Monday, in the country's latest milk scare.

Ava Dairy Co. Ltd has started a recall after high levels of aflatoxin, which is caused by mould, was found in products made between July and December, the watchdog said, according to the official Xinhua news agency.

The affected formula was mainly sold to supermarkets in Hunan and Guangdong, said Li Yuanping, spokesman for China's General Administration of Quality Supervision, Inspection and Quarantine.

China is trying to crack down on product safety violations to reassure citizens and restore faith in the government after a series of high-profile scandals.

The latest case comes just a month after dairy maker Yili began recalling batches of baby formula when authorities found they contained high levels of mercury.

And in December, aflatoxin was found in milk produced by another leading dairy company, Mengniu Dairy Group.

Milk was at the centre of China's biggest food safety scandal in 2008 when the industrial chemical melamine was found to have been illegally added to dairy products to give the appearance of higher protein content.

At least six babies died and another 300,000 became ill after drinking milk tainted with melamine.

Aflatoxins can be found in milk after cows consume feed contaminated by mould and can increase the risk of cancer, including liver cancer, according to the World Health Organisation.