China's dairy giants are locked in a bitter battle after a leading industry player, Mengniu, was accused of fabricating product safety scandals to tarnish the images of its rivals, a charge the Hong Kong-listed company denies.

The alleged backbiting underscores the brutally competitive nature of the country's dairy market, which has recently been plagued by safety scandals, such as fatal melamine contamination and fears over infant girls' premature puberty, which have caused outrage among consumers.

Online posts alleged Tuesday that unidentified staff members at Mengniu were under police investigation for hiring a public relations agency to calumniate a milk product of its biggest rival, the Inner Mongolia Yili Industrial Group, saying the latter's products contain deep sea fish oil, an ingredient believed to cause sexual precocity among children.

A public relations officer at Yili, Zhang Lina, told the Global Times Wednesday that the company reported the allegations to local police after allegations against the company's milk products were posted online in July.

Local police concluded that Mengniu has a role in the case, Zhang claimed.

Four people involved in the case, including one of Mengniu's directors in charge of children's milk products, An Yong, and three individuals at Mengniu's contracted PR agency were arrested, Zhang said Wednesday.

Police in the northern Inner Mongolia Autonomous Region made no comment on the case.

Meanwhile, various Internet posts claim that Mengniu is also guilty of framing Beijing-based dairy Syrutra, linking it to alleged cases earlier this year of infant baby girls growing breasts. The rumor has been dismissed by the Ministry of Health after an investigation proved there is no link between Syrutra's products and premature puberty.

In a statement Wednesday, Mengniu Group refuted the charges, insisting it has nothing to do with the Syrutra scandal and denied any of its staff at managerial level have been detained by police.

"We fully understand the harm of illicit competition. Putting ourselves in a rival company's place, we know exactly how it feels, so we earnestly hope that police discover the truth behind the Syrutra scandal as soon as possible," Mengniu said in a statement.

However, the statement did not respond to the accusation from Yili regarding the contamination of its products.

The share price of Mengniu Dairy Group, listed in Hong Kong Stock Exchange, dropped 2.119 percent Wednesday.

Total revenue among the top three dairy giants in 2009 was 57.84 billion yuan ($8.7 billion), while Mengniu and Yili, in first and second place, earned 25.7 billion yuan and 24.2 billion yuan respectively.