China's commercial hub Shanghai plans to turn recycled cooking oil, some of it seized by authorities, into an environmental asset by converting it into fuel for vehicles, state media said Monday.

The country has been rocked by a series of food safety scandals including the re-use of waste oil recycled from restaurants and called "gutter oil" in Chinese.

The Shanghai government plans to cooperate with a local university and six companies to produce biodiesel from used oil to power the city's buses, taxis and trucks, the China Daily newspaper reported.

Tongji University, one of China's most prestigious, has been experimenting for the last three years to create the ideal mix, the report said, but did not detail the scale of the plan.

In 2011 China arrested 32 people over the sale of "gutter oil", which is thought to contain carcinogens and other pollutants.

Shanghai has also cracked down, in March implementing rules on proper disposal of waste oil and qualifications for collectors.

"On the one hand, we emphasised cleaning up illegal oil collectors. On the other, we looked for ideal ways to use the recycled oil," Yan Zuqiang of the Shanghai Food Safety Committee was quoted by the China Daily as saying.

When the gutter oil scandal emerged in 2010, experts estimated that people in China consumed two to three million tonnes of the illegally recycled oil every year.

The revelation forced the nation's food safety watchdog to step up its inspections, but experts said the business was extremely profitable.

China's food industry is notorious for safety problems despite regular government crackdowns.