Some 54,000 infants are thought to have been sickened after being fed milk products tainted with melamine, and at least four babies have died.
The China Daily cited police sources as saying 19 of those arrested in Hebei were managers at dairy pastures, breeding farms and milk purchasing stations.
"According to the police investigation, melamine was produced in underground plants and then sold to breeding farms and purchasing stations," the newspaper said.
It said one suspect was thought to have produced a "protein powder" containing melamine – a chemical whose high nitrogen content can fool quality checks.
|Officials say milk purchasing stations are being investigated [GALLO/GETTY]
Another suspect, named Xue, is thought to have sold the powder to milk purchasing stations in the province, the paper said.
Investigators believe that the purchasing stations were among the key links in the supply chain that allowed the contamination and to take hold and spread.
News of the arrests follows reports of further cases of melamine contamination in products beyond mainland China.
On Monday Indonesia's food and drug monitoring agency said a dozen products distributed nationwide have repeatedly tested positive for the chemical.
They include products by manufacturers Kraft and Mars - which makes M&M and Snickers chocolate.
The companies involved have questioned the findings and say they will conduct their own tests.
In China itself, British-based confectionary maker Cadbury said it had recalled 11 types of chocolates made in China, after tests found they contained melamine.
It said the recall would affect products sold in China, Hong Kong, Taiwan and Australia.