The contamination of drinking water in Lanzhou, Gansu province, was caused by a pipeline leak involving a subsidiary of China's largest oil company, state media said.
City officials on Friday warned Lanzhou's more than three million residents not to drink tap water after tests revealed benzene levels that far exceeded national limits.
The sole water supplier for the city's downtown is Veolia Water, a Sino-French joint venture.
Residents queued to buy boxes of bottled water or brought buckets, bottles and even tea kettles to stations where fresh water was being distributed by hoses.
Xinhua yesterday reported that soil along a duct between two of Veolia's water works had been contaminated by crude oil leaking from a buried pipeline of Lanzhou Petrochemical, a subsidiary of China National Petroleum Corporation.
The investigation result was revealed by the chief of the city's environmental protection bureau, Yan Zijiang, during a videoconference with the municipal government, Xinhua said.
"The channel was carrying water to Veolia Water's No 1 and No 2 plants for decades. Lanzhou Petrochemical's oil pipeline lies under this ditch," Yan was quoted as saying, adding that the leakage had been located and repairs were under way.
China Central Television reported that the petrochemical pipeline was laid just next to the water plant's internal reservoir.
Benzene is a widely used industrial chemical. When ingested it can cause vomiting, dizziness, convulsions and even death at high dosages.
The contamination shocked Vice-Premier Zhang Gaoli, according to a statement posted on the Lanzhou government website. It said Zhang had ordered state agencies to work together to find the source of the contamination.
Mainland media have questioned why city officials waited 18 hours after the contamination was revealed in tests before warning the public.
Lanzhou residents said they had complained about foul-smelling tap water since last month, but the government said it was just excessive ammonia and was safe to drink. It remains unclear whether the two incidents are related.
"We had noticed a strange smell in the water since March, but our government did nothing about it. The water supply was halted since [Friday] after everyone smelled a strong odour when turning on taps," a resident told the Sunday Morning Post.
"Many people are angry because we had been forced to drink contaminated water for nearly one month. The authorities started to take action to solve the problem as they realised it's impossible to cover up the severe contamination."
Lanzhou party head Lu Haiyan denied any cover-up.