Families of children who died after being given the adulterated formula will each receive 200,000 yuan (29,000 dollars) from the fund, the China Daily newspaper reported.

Parents of infants who were hospitalised will get between 30,000 and 50,000 yuan, it said.

At least six babies in China died this year and another 294,000 fell ill after drinking milk laced with the industrial chemical melamine, which is normally used to make plastic.

Melamine was mixed into the watered-down milk to make it appear richer in protein. But the chemical caused severe kidney problems and urinary tract problems in babies who drank the tainted milk powder.

The scandal, which emerged in September after initially being covered up, shook the foundations of a Chinese food industry that was already beset by repeated safety problems.

It quickly became a global concern after contaminated Chinese milk products were found abroad.

According to the China Business News, the new fund will come into effect from January and pay for medical treatment and operations for diseases caused by the tainted milk.

In total, the firms will pay out more than 900 million yuan (130 million dollars) in cash and set up a 200-million-yuan medical fund to cover bills for any lingering health problems, the China Business News reported.

The China Daily said a total of about 13.5 billion yuan would be needed to compensate all the victims.

China Life, the country's largest life insurer, has been appointed to manage the fund, the China Business News said, adding the government had ordered the firms to pay the compensation.

However, one lawyer representing victims of the scandal said the amount put forward by the milk companies was not enough to provide for all the victims, and criticised the whole compensation process.

"I have seen only the news reports, but from what I have seen the amount of money being put forward is not enough, the payments will be too low," said Li Fanping, who is representing the families of about 100 victims of the scandal.

"This compensation plan has not been an open process. The victims and consumers were not allowed to participate. They should have the right to go through a judicial process to seek compensation and it is not clear if this will happen."

Numerous lawsuits demanding compensation for victims of the scandal have so far not been accepted by Chinese courts.

Lawyers for victims have said the government had warned them not to sue, possibly fearing a slew of potentially costly lawsuits that would also attract bad publicity.

The trials of six suspects accused of manufacturing, trading or adding melamine to dairy products began Friday last week, earlier Chinese reports said.

Four more people linked to the scandal went on trial Monday, the official Xinhua news agency said.

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