China Human Rights Defenders, a network of domestic and foreign human rights activists, cited several instances of reporting by Chinese media censored by authorities.
'China has tightened its grip on media freedom to contain rising nationwide outrage at tainted milk products,' the group said in an email.
Chinese media reports first emerged in early Sept that China-made baby formula had been contaminated with the industrial chemical melamine.
Beijing has since said 53,000 children have been sickened, with separate government reports saying four children have died, with the first succumbing in May.
Since then, the scandal has spread to a wide range of products, including ice cream, yoghurt, sweets and cookies containing Chinese milk, and it has prompted several overseas product recalls and bans.
The China Human Rights Defenders said the central government, on Sept 12 and 13, ordered all Chinese media to use only articles by the official Xinhua news agency.
The group detailed cases of Chinese newspapers and other media being intimidated into throwing out independently reported stories as the scandal spread.
AFP could not immediately verify the allegations.
'Even after the scandal became public knowledge, further media censorship has prevented serious scrutiny of the deep-seated problems in the system,' the group said.
On Saturday, Premier Wen Jiabao denied reports that the scandal had been covered up to prevent embarrassment during the Aug Olympics.
'We have faced the problem candidly and laid the foundation to solve it,' Mr Wen said during an appearance at the World Economic Forum in the city of Tianjian.
Xinhua reported last week that officials at Sanlu Group, the dairy firm at the centre of the scandal, knew as far back as Dec that babies were falling ill but did not report the problem to local authorities until Aug.
The report said those local authorities then waited one month to pass the concerns on to the central government. -- AFP