All 19 people detained so far in a nationwide probe into how the chemical melamine came to contaminate the formula are from the stations, which pick up milk from dairy farmers, the state-controlled China Daily said.
"It's unlikely that dairy farmers mixed the industrial chemical melamine in fresh milk," it quoted Li Changjiang, who heads the General Administration of Quality Supervision, Inspection and Quarantine, as saying.
He added: "We believe the contamination is more likely to have occurred at milk collecting stations."
This is in contrast to initial statements from Sanlu Group, the company at the centre of the scandal, blaming "defective" fresh milk supplied by farmers for the contamination, the paper said.
Melamine, which is used for making plastics and glues, may have been added to make the milk appear it contained more protein than was actually the case, Chinese media have suggested.
Xinhua news agency said Monday that two babies, both in northwest China's Gansu province, had been confirmed dead after drinking the contaminated milk powder, up from the one fatality reported earlier by health authorities.
Nationwide the number of babies sick with kidney stones after drinking the formula has risen to about 580, up from 432, the China Daily said.
In Gansu province alone there were 223 babies and infants suffering kidney stones, which is unusual among young children, the Gansu Daily said.
Chinese inspectors have fanned out into major milk-producing areas in a bid to contain the developing scandal, media reported.
In Gansu province, they found melamine in samples selected at random from Haoniu Dairy Co., a partner of Sanlu Group but which produces under the Sanlu trademark, according to Xinhua.
"The products of Haoniu have been sealed up," Gansu Vice Governor Xian Hui told the agency.
Sanlu, in which New Zealand dairy giant Fonterra has a stake, is considered a relatively inexpensive brand and is favoured notably by poor rural women.
Milk powder is also becoming more widespread in rural China as many women from the countryside go to work in the cities and so are unable to breastfeed their own children.
Meanwhile New Zealand Prime Minister Helen Clark said her government "blew the whistle" on the sale of the tainted milk powder after local authorities in China refused to act.
Officials at Fonterra "have been trying for weeks to get an official recall and the local authorities in China would not do it," she told Television New Zealand's Breakfast programme.
The premier said she had learned of the problem on September 5. Three days later she ordered officials to inform authorities in Beijing, bypassing local officials.
"As you can imagine," she added, "when the New Zealand government blew the whistle in Beijing, a very heavy hand then descended on the local authorities.
"At a local level... I think the first inclination was to try and put a towel over it and deal with it without an official recall. That is never what we would do in New Zealand."