One baby has died and 14 are ill with blood poisoning after being given what appears to be a contaminated batch of liquid food.
The babies, many of which were premature, were all being cared for in neonatal intensive care units at six hospitals across England.
The newborn who died was being treated at London's Guy's and St Thomas's Hospital.
The surviving babies are said to be responding to antibiotic treatment.
They were all given the liquid feed direct to their bloodstream as they could not be mouth fed.
Public Health England and the Medicines and Healthcare products Regulatory Agency (MHRA) are investigating.
They said as the blood poisoning, caused by a bacterium known as Bacillus cereus, develops quickly they were not expecting any more cases.
In a statement, the two organisations said: "Investigations with the company have identified an incident that might have caused contamination."
An alert has been issued to recall the contaminated product, manufactured by ITH Pharma Limited, from hospitals.
The batch expired on Monday so should not have been used in the past two days. A total of 162 units were sent out from the contaminated batch to over 20 hospitals.
The neonatal units that have reported cases are:
•Chelsea and Westminster NHS Trust, London (four cases)
•Guy's and St Thomas's NHS Foundation Trust, London (three cases)
•Brighton and Sussex University Hospitals NHS Trust (three cases)
•Addenbrooke's, Cambridge University Hospitals (two cases)
•Luton and Dunstable University Hospital (two cases)
•The Whittington Hospital, London (one case)
Bacillus cereus is a bacterium found widely in the environment in dust, soil and vegetation. Most surfaces would be likely to test positive for the presence of the bacterium.
Microbiologist Professor Hugh Pennington said the bacterium caused food poisoning.
"When the bug gets into the bloodstream by direct injection into these very very frail little babies, that have really got no immune defences of their own yet, that can be catastrophic," he said.
Prof Mike Catchpole, Public Health England's incident director, said: "This is a very unfortunate incident and PHE have been working closely with the MHRA to investigate how these babies could have become infected.
"Given that the bacterium is widely spread in the environment we are continuing to investigate any other potential sources of infection.
"However all our investigations to date indicate that the likely source of the infection has been identified."
A spokesman for Guy's and St Thomas's Hospital said the infections first came to light on Saturday.
"The infection has affected three babies. Sadly one of these babies has died. The other two are responding well to antibiotics.
"All babies on the unit are being screened for the bacterium as a precaution and enhanced infection control measures have been put in place to prevent any further cases. These enhanced measures will remain in place until the Trust is satisfied that no other babies are at risk.
"We are supporting the parents involved and keeping them fully informed."
A spokesman for the Chelsea and Westminster Hospital, which has seen four babies infected since Friday, said: "We are very sorry to those families affected during this difficult time but all four babies are responding to treatment.
"Every baby on the unit has been screened for this bacterium as a precaution and even more stringent infection control measures have been put in place. Initially admissions to the unit were restricted but we are now returning to full operational capacity."
Addenbrooke's Hospital said all the babies under its care were being treated and had responded well.
It added: "Public Health England believes the outbreak is now controlled but will be following up to make sure there is no further risk. If parents have any concerns they should speak to their clinician."
ITH Pharma managing director Karen Hamling said the company was "very saddened" by the baby's death and was co-operating fully with the investigation.
Prof Adam Finn, professor of paediatrics, University of Bristol, said the incident seems to have been detected quickly "but, tragically, not quickly enough to save a life lost".
He added: "Having stopped the outbreak, the next priority will be to understand how it came to happen and ensure it cannot recur."
Prof Ron Cutler, director of Biomedical Science Degree Programmes, Queen Mary University of London, said: "Bacillus cereus is widespread in the environment. It is commonly found in the soil. Poorly cooked food such as rice, which can be contaminated with these spores, are a common cause of food poisoning.
"Because they form spores it makes it more difficult to disinfect surfaces and materials contaminated with these spores without using high temperatures and/or powerful disinfectants. In addition when untreated, spores can survive in environments for long time periods."