Chinese police arrested 32 people accused of dredging up used cooking oil from sewers behind restaurants and selling it for reuse.
More than 100 tons of the "gutter oil" was confiscated in a crackdown on a criminal network that operated in 14 provinces, the ministry said on its website.
"This case, through a difficult process of investigation ... not only struck down a criminal chain of gutter oil producers, but also uncovered hidden details of the offenders' greedy and unconscionable production of poisonous and harmful cooking oil," the statement said.
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Shops where the disgusting oil was processed were closed, including one operated by Jinan Green Bio Oil Co., a business that claimed to be turning kitchen oil into fuel but that was actually churning out recycled cooking oil.
Recycled oil can contain carcinogens and traces of aflatoxin, a potentially deadly mold.
Last year, the State Council, China's Cabinet, said businesses that use recycled oil would be forced to close temporarily or lose their business license and that peddlers who sell the oil could be criminally prosecuted.
The Chinese government has tried to crack down on food hazards in recent years. In July, a man received a suspended death sentence for his role in selling tainted pork. In 2008, at least six children died and nearly 300,000 got sick from milk laced with an industrial compound added to give it misleadingly high results in protein tests.