The Ministry of Public Security said police had seized more than 100 tonnes of so-called ‘gutter oil’ – used cooking oil dredged from drains and gutters near to restaurants - that is later treated and resold to unsuspecting businesses and consumers.
The sweep was said to have centred on a criminal network that was operating in 14 provinces throughout the country.
"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," said a Ministry statement.
The suspects were taken into custody after a probe was launched in March in the wealthy eastern province of Zhejiang.
The ministry vowed to redouble efforts to eliminate China’s gutter oil ring.
Concerns over the burgeoning illegal cooking oil trade in China have been growing in recent years – with photographs of oil being reclaimed from drains circulating on the internet, said Reuters.
The latest scandal is another blow to the China’s battered food safety image.
Recent scandals include tainted vinegar, contaminated flour and the continuing problem of melamine being added to milk powder.
In 2008, the wide-spread practice of lacing milk powder with melamine in China made global headlines. The scare killed at least six and sickened at least 300,000.
Two people were executed in the wake of the scandal and Beijing has promised to deal harshly with any future violations.
Since July 2011, Chinese courts have sentenced jailed around 12 people - including one person who received a suspended death sentence - for their roles in producing or selling pork tainted with toxic chemicals.