Horsemeat weighing 40kg (88lb) has been sold to shoppers while wrongly labelled as beef, the Food Standards Agency said.
The meat was part of a consignment of 100kg (220lb) of equine flesh labelled as "diced beef" which was imported from Hungary and discovered by Lancashire County Council, the FSA said.
It was imported by Hungarian Food Ltd in Preston, Lancashire, and sold in 1kg bags on its market stall in the town and by a deli, Taste of Hungary, in Merseyside.
The remaining 60kg have been removed from sale and is being tested by the local authority for the veterinary drug bute, the FSA said.
Attila Fabian, the manager of the deli in Waterloo, Merseyside, said he ate some of the meat after taking it home, thinking it was beef.
He said he was shocked to have discovered he had been selling the meat when environmental health officers visited the shop.
He said he had bought 20 1kg bags of what he thought was diced beef from Hungarian Food Ltd in May last year, rather than import it directly, but it sold so badly that he ended up taking four or five bags home for his family.
"I didn't know about it," he said. "It tasted like beef, it looked like beef."
He said they sold 12 or so bags of the horse meat, and there were still three bags in the freezer which were taken away for tests. The shop had ceased trading with Hungarian Food Ltd after they "fell out" in July last year, he added.
An FSA spokesman said: "The Food Standards Agency has notified the European Commission and the Hungarian authorities. The local authority is investigating and the meat will be tested for the veterinary drug bute."