Horsemeat weighing 100kg (220lb) and falsely labelled as beef has been identified by council officials, with 40kg (88lb) of it already sold to the public.
The meat was imported by Hungarian Food Ltd in Preston, Lancashire, and sold on its market stall in the town and a shop in Liverpool called Taste of Hungary, the Food Standards Agency (FSA) said on Friday.
It said the discovery of the horse flesh, being sold in 1kg bags labelled as "diced beef", was made by Lancashire County Council. The remaining unsold meat has been withdrawn from sale.
An FSA spokesman said: "The Food Standards Agency has been informed by Lancashire County Council that it has identified 100kg of horse meat imported from Hungary labelled as beef.
"The meat was imported by Hungarian Food Ltd in Preston. Investigations showed that 40kg were sold through Hungarian Food Ltd's own market stall in Preston, and through a shop in Liverpool called Taste of Hungary.
"The remaining meat has been withdrawn from sale. The meat was sold in 1kg bags labelled as 'diced beef'.
"The Food Standards Agency has notified the European Commission and the Hungarian authorities. The local authority is investigating and the meat will be tested for the veterinary drug bute."