Police have rounded up a 20-member gang on suspicion of manufacturing and selling "gutter oil" in East China's Zhejiang province, prosecutors announced over the weekend.

According to a statement the Wucheng district procuratorate released on Saturday, the gang, led by Li Weijian and his wife Xu Xiaoqing, had invented a new kind of "gutter oil", illegal cooking oil. They replaced the usual ingredients, like kitchen waste, with decomposed animal fat and organs from slaughterhouses. They had been selling this as cooking oil since 2005.

Because they used animal fat and organs passed their sell-by date - purchased "for industrial use" - the underground workshop in Jinhua, Zhejiang province, evaded suspicion and made huge profits according to prosecutors.

In the first 11 months of last year, the gang pocketed 10 million yuan ($1.59 million) from the business, authorities said.

The gutter oil, made from kitchen waste, and the oil made in the underground workshop could pose a serious health risk because it contained carcinogenic and other dangerous substances, authorities said.

The workshop oil, sold for 7,600 yuan a ton, went to cooking oil reprocessing plants for "refinement" and was then sold to restaurants and food factories in major cities such as Shanghai, Chongqing, and cities in Anhui province, according to prosecutors.

The workshop was detected in October when residents reported to police they "often smelled a foul odor in the area". After a five-month investigation, police moved in and seized more than 3,200 tons of gutter oil from 13 production points in the area, including the workshop, police said.

Police started watching individual oil producers and ultimately tracked down Li's as the largest production base, Fu Xuejun, the leader of the police investigation team, was quoted by the Hangzhou-based Qianjiang Evening News as saying.

In August, the central government launched a nationwide campaign against illegal cooking oil, one of the most widespread food safety problems in China. More than 130 gutter oil cases involving more than 800 criminals were cracked in China from August to February, according to the Ministry of Public Security.

A law was introduced setting severe penalties, including capital punishment, for manufacturing and selling gutter oil. Some cities have tried to establish administrative ways of keeping gutter oil off dining tables. Shanghai, for example, is encouraging restaurants and hotels to return kitchen leftovers to formal recyclers by rewarding them.

"The policy is, the more you return, the more you will be rewarded," said Yan Zuqiang, director of Shanghai Food Safety Office.

In addition, the office is also calling for more enterprises to reuse recycled waste oils as biological diesel oil.