Horse meat weighing 100kg and falsely labelled as beef has been identified by UK council officials, with 40kg of it already sold to the public.
The meat was imported by Hungarian Food Ltd in Preston, Lancashire.
It was sold on its market stall in the town and a shop in Liverpool called Taste of Hungary, the UK Food Standards Agency said.
The discovery of the horse flesh, being sold in 1kg bags labelled as "diced beef", was made by Lancashire County Council.
The remaining 60kg have been removed from sale and is being tested by the local authority for the veterinary drug bute, the FSA said.
Attila Fabian, the manager of the deli in Waterloo, Merseyside, said he ate some of the meat after taking it home thinking it was beef.
He said he was shocked to have discovered he had been selling the meat when environmental health officers visited the shop today.
He said he had bought 20 1kg bags of what he thought was diced beef from Hungarian Food Ltd in May last year, rather than import it directly, but it sold so badly that he ended up taking four or five bags home for his family.
He said they sold 12 or so bags of the horse meat, and there were still three bags in the freezer which were taken away today for tests.
He said the shop had ceased trading with Hungarian Food Ltd after they "fell out" in July last year.
An FSA spokesman said: "The Food Standards Agency has been informed by Lancashire County Council that it has identified 100kg of horsemeat imported from Hungary labelled as beef.
The discovery is the latest in the ongoing scandal over horsemeat and other contamination of food products.
Many of Britain's biggest food firms and supermarkets have recalled beef products after tests found they contained horse DNA.
Aldi, Findus, Co-op, Tesco, Asda, Taco bell, Birds Eye, Sodexo, Whitbread, Birds Eye, Brakes and Rangeland were all found to have products in the UK affected.
This week Asda said its 340g tins of Chosen By You Corned Beef and Smart Price Corned Beef, withdrawn on 8 March as a precaution, had subsequently tested positive for "above trace levels" of horse DNA.
Last week Westminster Council said pig DNA had been found in Halal chicken sausages served in at least one primary school, St Mary's Bryanston Square, a Church of England school in west London.