The owner of a meat processing plant was arrested tonight along with two other men by officers investigating the horse meat scandal.
Dafydd Raw-Rees, 64, the owner of Farmbox Meats near Aberystwyth, was arrested on suspicion of offences under the Fraud Act, sources said, along with a 42-year-old man.
A 63-year-old man was also arrested on suspicion of the same offence at Peter Boddy Slaughterhouse in Todmorden, West Yorkshire.
Both plants were inspected on Tuesday by the Food Standards Agency (FSA).
Owner Mr Boddy, 63, yesterday said he had done nothing wrong and insisted the FSA inspection was merely to look at his records, but was tonight unavailable for comment.
A Dyfed-Powys Police spokesman said: "Dyfed-Powys Police have today made arrests at both meat plants inspected by the Food Standards Agency on Tuesday.
"At Farmbox Meats near Aberystwyth, Dyfed-Powys Police have arrested two men aged 64 years and 42 years, and in a simultaneous operation police arrested a man aged 63 at the Peter Boddy Slaughterhouse in Todmorden, West Yorkshire.
"Approvals for both operations were suspended yesterday by the FSA so neither firm was operational.
"Dyfed-Powys Police can confirm the three people have been arrested on suspicion of offences under the Fraud Act and they are being detained at Aberystwyth Police Station where they will be interviewed jointly by police and FSA staff in what has this afternoon become a joint operation."
The two plants became the first UK suppliers suspected of passing off horse meat for beef.
Production at both plants was suspended pending the outcome of investigations into claims they supplied and used horse carcasses in meat products purporting to be beef for burgers and kebabs.
The FSA said on Tuesday it had "detained" all meat found at the premises and seized paperwork and customer lists from the two companies.
The arrests were made as Asda withdrew its 500g beef bolognese sauce from shelves after tests revealed the presence of horse DNA, the supermarket chain said tonight.
The company apologised to customers and said it was taking a "belt-and-braces approach" by removing a further three beef products made by the same supplier, the Greencore plant in Bristol, as a precaution.
Police arrested the men after it emerged a significant amount of horse meat containing the painkiller phenylbutazone - or "bute" - could have been entering the food chain for some time.
Authorities in Britain and France are trying to trace the carcasses of six horses contaminated with bute - which were slaughtered in a UK abattoir and may have entered the human food chain across the Channel.
The drug, which is potentially harmful to human health, was detected in eight horses out of 206 tested by the FSA in the first week of this month.
Two were intercepted and destroyed before leaving the slaughterhouse but the other six were sent to France, where horse meat is commonly eaten.
FSA chief executive Catherine Brown said the agency increased testing of horse carcasses over a three-month period last year after intelligence from abattoirs suggested bute was getting into the food chain.
Of 63 tested - amounting to 5% of all carcasses - four (6%) tested positive for the painkiller, prompting the FSA to start testing 100% of horse meat in January, which revealed the eight contaminated carcasses.
Ms Brown said: "That would say there has been a significant amount of carcasses with bute going into the food chain for some time."
However tests on Findus processed beef products withdrawn from sale in the UK after the discovery of traces of horse meat found no evidence of the substance.
Chief Medical Officer Dame Sally Davies said that although the drug was linked to side-effects in patients who have been taking it as a medicine for arthritis, the risk was very low.
"If you ate 100% horse burgers of 250g, you would have to eat, in one day, more than 500 or 600 to get to a human dose," she said.
The highest level of bute found in tests was 1.9 milligrammes per kilo of meat.
Ms Brown said both vets and horse owners have to sign horse passports if an animal is treated with bute, to ensure it is not subsequently sold on for human consumption.
"If both these people have done the right thing, horses with bute in don't make their way into the food chain," she said.
"Someone has always broken the rules."
The six bute-contaminated horses which were sent to France had been slaughtered by LJ Potter Partners at Stillman's (Somerset) Ltd in Taunton, Somerset, said the FSA.
The remaining two, slaughtered at High Peak Meat Exports Ltd in Nantwich, Cheshire, did not leave the slaughterhouse and have been destroyed.
Announcing the results of the bute tests in the House of Commons, agriculture minister David Heath said the Government had instigated the "biggest investigation ever" into criminal activity in Europe over horse meat contamination of beef products.
The FSA is set to report on UK products tomorrow after retailers and suppliers were asked to provide "meaningful results" from tests to detect the presence of horse meat in processed meals labelled as beef.
But shadow environment secretary Mary Creagh accused the Government of "catastrophic complacency" over the danger of bute entering the human food chain.
Reminding Mr Heath that she had raised the issue with him in the Commons last month, Ms Creagh said she was "astonished" to learn that contaminated horse meat may have been sent to France for human consumption.
"We must make sure horse meat intended for humans is not contaminated with bute, it really is as simple as that," she said.
"Why did you not act immediately when I raised this issue three weeks ago in this House?"
Prime Minister David Cameron's official spokesman said: "Bute should not be present in horses that go into the food chain.
"It is incredibly important that we get to the bottom of what is happening.
"My understanding is that we are working very closely with French authorities on tracing the carcasses involved that went to France. We are doing that as a matter of urgency with the French authorities."
Last night at an emergency summit in Brussels, EU ministers agreed to the random testing of meat products across Europe for both horse DNA and bute.
But a parliamentary report today condemned the Government for its "flat-footed" handling of the scandal, warning that its ability to respond has been weakened by cuts at the FSA.
The Commons Environment, Food and Rural Affairs Committee said the public appeared to have been "cynically and systematically duped" for financial gain by elements of the food industry - raising wider concerns about the safety of the contaminated products.
"It seems improbable that individuals prepared to pass horse meat off as beef illegally are applying the high hygiene standards rightly required in the food production industry," it said.
"We recommend that the Government and FSA undertake a broader spectrum of testing for products found to have the highest levels of contamination ... to provide assurances that there is no other non-bovine DNA or any other substances that could be harmful to human health present."
Meanwhile, a processing factory in Co Monaghan in the Republic of Ireland withdrew some batches of burger products produced for the UK market, some of which tested positive in the UK for 5% to 30% horse meat.
Rangeland Foods said the burgers, which contained beef supplied from Poland, date back to production in September and were specifically produced for the UK market and made to a specification for EU beef from EU-approved suppliers.
In a statement, LJ Potter Partners said it had taken steps to recall meat delivered to France and had warned Defra that Horse Passport Regulations would not ensure public health.
It said: "All equines humanely destroyed by us have been accompanied by their passport permitting entry to the food chain.
"In addition to EU Regulations all suppliers are required to sign a declaration declaring that the animal has not been treated with drugs that would require permanent exclusion from the food chain, and that withdrawal periods have been observed for permitted drugs; prior to the 2005 regulations we required a strict 28 day withdrawal from all medication and in those circumstances we had zero positive test results for residues of phenylbutazone during a period covering more than 20 years.
"We wish to produce meat that is wholesome, nutritious, good value and, most importantly, safe.
"The current EU Regulations have been proved, beyond all doubt, to be ineffective in permitting us to do this; they additionally are inappropriately excluding large numbers of horses from the legitimate food chain.
"It is our belief that this has been the causal condition that has led to large numbers of horses entering the food chain illegitimately.
"The fraudulent misrepresentation of horse meat is a direct consequence of ignorant, mis-informed, badly drafted EU legislation.
"It is our belief that the majority of equines with a passport signed out of the food chain have a similar residue profile to those permitted to enter the food chain, and that the current news story proves that the Horse Passport Regulations 2005 & 2009 are wholly inappropriate to the control of equines permitted to enter the food chain.
"Having been informed of positive samples taken over the past two weeks, we have already taken steps to recall meat delivered to France in order to protect our French customers.
"We have, also, not processed horses this week to permit the FSA to put in place a test that is able to provide results prior to meat being despatched.
"We believe that this interim measure will ensure public safety. We will not process horses again until these measures are in place.
"We firmly believe that the humane destruction of horses for the human food chain has an important role to play in ensuring horse welfare, as otherwise unwanted horses would be left to enter a downward spiral to neglect.
"We are seeking a fundamental reappraisal of the legislation to permit our legitimate industry to perform its dual role in protecting horse welfare and providing customers who wish to purchase and consume horse meat with a product in which they can be confident."