American fast food giant McDonald's and Yum! Brands, the owner of Pizza Hut and KFC, have stopped buying meat from a Shanghai-based supplier following allegations that it sold 'rotten' chicken and beef.
McDonald's and Yum! have issued an apology to its Chinese customers.
They announced that they will launch an investigation into allegations that supplier Shanghai Husi Food Company falsified expiry dates on meat products in the latest food scare to hit China.
The Shanghai Food and Drug Administration yesterday suspended Husi's operations and ordered its products to be recalled, China's Xinhua News Agency reported.
The actions come after an undercover television report alleged that the supplier violated food safety regulations.
The report by Dragon TV showed footage of employees picking up meat from the floor and 'rotten' beef being repackaged with a new expiry date.
This was then sold to international clients including Yum!'s KFC and Pizza Hut chains, and McDonald's chain of fast food restaurants.
Husi Food has been supplying McDonald's in China since 1992 and Yum! since 2008, according to its website.
In a statement, McDonald's said it had suspended orders from Husi Food on its Weibo social media account.
Meanwhile, Yum! warned that some of its restaurants could be hit by shortages.
The incident looks set to deal a fresh blow for both chains, which were hit by a food scare scandal in China in 2012. That sparked a significant decline in sales for Yum! which had rebounded in recent months as food safety concerns appeared to have eased.
The company reported a 19%increase in second-quarter profits last week, boosted by its improving business at KFC in China, before the undercover report was aired on Sunday.
"Yum had just started rebuilding credibility and had some decent sales news which just came out for the second quarter. I think this is going to really set them back," said Benjamin Cavender, a Shanghai-based analyst at China Market Research.