Nitrite found in four types of sausage made at the factory was 35-48 times higher than safe levels, according to the Food and Drug Administration (FDA).
"The FDA is taking legal action against the factory owner," confirmed FDA deputy secretary-general Weerachai Nolwachai.
The factory operator faces up to two years in prison, a fine of 20,000 baht or both.
FDA and provincial public health officials are now analysing 102 samples taken from sausage factories and outlets across 66 provinces, he added.
So far, the analysis has found contamination at two bootleg factories in Ayutthaya that manufacture 13 types of sausages. Operations at both factories had been suspended and 4.3 million baht worth of equipment seized, Weerachai said.
He added that health officials in provinces bordering Myanmar have been instructed to inspect local sausage outlets after the Myanmar Health Ministry warned people not to consume sausages from Thailand.
The FDA warned sausage manufacturers to stick strictly to Good Manufacturing Practice (GMP) standards to ensure consumers' safety.
"Meanwhile, consumers should purchase sausages from reliable sources," said Weerachai.
Anyone who finds unsafe food products can call the FDA hotline at 1556 or Public Health Offices nationwide.