"They [Fonterra] have been trying for weeks to get official recall and the local authorities in China would not do it," Clark told TVNZ.
"I think the first inclination was to try and put a towel over it and deal with it without an official recall"
Helen Clark, New Zealand prime minister
Fonterra, a New Zealand firm which owns more than 40 per cent of Sanlu, the China company at the centre of the scandal, said it had raised the alarm more than a month ago, urging a public recall.
Clark said she was told of the problem on September 5 and three days later New Zealand officials were ordered to bypass local officials and inform the Chinese central government.
"As you can imagine when New Zealand government blew the whistle in Beijing a very heavy hand then descended on the local authorities," she added.
Both infant deaths occurred in Gansu province, a poor region in China's northwest, and many of the nearly 600 sick babies were also from poor or remote areas.
Chinese authorities ordered Sanlu to halt production last week after investigators found the chemical melamine in its powder was causing kidney stones in infants.
|Nearly 600 babies have fallen ill after drinking the contaminated milk powder [AFP]
But Sanlu had begun receiving customer complaints as early as March that babies' urine was discoloured and that some had been admitted to hospital.
Farmers or dealers supplying milk to Sanlu are suspected of diluting it with water and then adding the melamine – a chemical used in plastics, fertilisers and cleaning products - to make the milk's protein level appear higher than it actually was.
Melamine was linked to deaths and illness of thousands of cats and dogs in the US last year after it was added to pet food exported from China.
On Monday the China Daily newspaper quoted Li Changjiang, head of China's General Administration for Quality Supervision, Inspection and Quarantine, as saying a nationwide inspection would cover the country's 175 baby milk food factories, with results of the checks expected to be released in days.
Chinese authorities have arrested 19 people so far and officials in Taiwan have sealed all Sanlu milk powder products that have yet to be distributed to retailers.
The incident is not the first in China. In 2004, at least 13 babies in the eastern province of Anhui died of malnutrition after drinking fake milk powder that investigators found had no nutritional value.