Hospitals and clinics in Shaanxi began receiving children sickened by lead in July, the news report said.
Local officials have said that they will relocate all households situated within 500 metres of the factory within two years, Xinhua said.
Households close to the site of the smelter were supposed to be relocated before the plant opened in 2006, but officials told Xinhua that "readjustments in the overall planning," had held up the process.
A spokesman for the local government, surnamed Wang, said the case was under investigation but refused to say whether pollution by the smelting company had caused the poisoning.
Enviromental regulations are poorly enforced across industrial areas of China, the world's third-largest economy.
Factory accidents and chemical leaks are common , and are often blamed on the failure of companies to observe basic safety controls.
Lead poisoning can damage the nervous and reproductive systems, cause high
blood pressure, anemia, memory loss and, in extreme cases, can kill.