The use of "gutter oil," or cooking oil that is created by reprocessing used oil, is a chronic problem in China.
The new law states that catering businesses will not be allowed to dump or discard kitchen garbage, adding that used oil should be handled using professional facilities and collected by licensed companies.
The municipal government will also set up a food safety accountability mechanism to collect, share and release information regarding food safety and enhance regional cooperation, according to the regulation.
The supervision and management of food safety in the city will also be included as a factor when evaluating the work of governments at all levels.
Beijing's tough rules on food safety came shortly after Shanghai announced on Wednesday that it would blacklist firms that flout food safety laws.
Under the proposed law, expected to become effective in 2013, firms caught using banned substances in food, producing food from inedible ingredients, or illegally making, selling or using banned food additives will be banned from operating in Shanghai, according to city officials.
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