A total of 94 people in Sichuan province, including 88 children, were found to have excessive levels of lead in their blood and officials suspect a nearby factory may be at fault, the province's news website scol.com.cn reported.
Seven children, the youngest of which is just over one year old, are being treated in hospital and the others are being monitored at home.
Local officials said a preliminary investigation had revealed a firm making lead out of used batteries, Longchang Zhongyi Alloy Company, could be the cause of the health scare.
It was not immediately clear how the residents were poisoned but officials are currently testing surface and well water, vegetables and soil within 800 metres of the plant.
It is the latest in a series of lead poisoning incidents across China that has highlighted the human cost of pollution in a nation that has so far prioritised economic growth over environmental protection.
Last year, authorities in central Henan province said they would relocate 15,000 people away from smelting plants in one area after nearly 1,000 children tested positive for lead poisoning.
Excessive levels of lead are considered hazardous particularly to children, who can experience stunted growth and even mental retardation.
The children in Sichuan were found to have at least 2.5 times the normal level of lead in their blood.
Kang Houlin, deputy head of Longchang county, said a full investigation was under way, according to the report.
"After the results of the investigation come out, we will severely punish those responsible for the incident," Kang was quoted as saying.