The government of Pingdu said on its website on Wednesday that the Liuhe Group slaughterhouses in the city have been ordered to suspend operations pending further investigation.
Pingdu officials have started to inspect all the chicken farms, animal feed and medicine companies and meat processing companies in the city.
The government said it will "punish illegal acts quickly and seriously according to law".
In a statement issued on Tuesday, KFC China said it had not bought chicken from Liuhe Group since August.
It also asked all of its chicken suppliers to provide quarantine qualification and test results for drug residue.
A Liuhe Group employee said the company is also investigating the incident, but declined to comment on KFC's statement. The China Division of Yum did not reply to China Daily's interview request.
Beijing resident Liu Yan, who frequents KFC restaurants, said the report will make her think twice.
Contact the writers at wangqingyun@chinadaily.com.cn
Jin Zhu contributed to this story.
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