Fonterra is seeking a billion rupee (about $17 million) gagging writ over a Sri Lankan newspaper allegation that its milk products have been adulterated with palm oil or other vegetable oil.

Fonterra Brands Lanka has sought a court order to stop daily newspaper Heladiwa Irida Sangrahaya and its editor Dharma Sri Kariyawasam from re-publishing the claim.

It is asking for a billion rupees as damages if the claim is again published.

A Colombo District Court judge Sampath Wijeratne is considering the New Zealand dairy giant's case against newspaper owner, Sayuri Newspapers.

In New Zealand, a Fonterra spokesman told NZPA the company expected to be able to comment after seeking details from its overseas staff.

Fonterra's lawyer, Romesh de Silva, told the court the company imported and distributed milkpowder for brands including Anchor, Red Cow and Raththi, Anmum, Anlene, and Anchor Shape.

On March 15, the newspaper printed an article and editorial alleging the milk products did not contain full cream, but instead added palm oil and vegetable oil.

Fonterra complained it was a false and baseless allegation, and that the newspaper was planning to launch a poster campaign and continue to publish similar articles.

Fonterra last year found itself a key player in the tainted-milk products scandal in China, after six babies died and many others became ill.

Milk made by Sanlu, 43 per cent owned by Fonterra, was found to be tainted with melamine, a toxic industrial compound that can give a false positive on protein tests.

- NZPA