Red yeast rice consists of rice fermented with a mould culture. It has been used in food, alcoholic drinks and folk medicines for centuries around East Asia.
Kobayashi has said that it detected a potentially toxic acid produced by the mould at one of its factories.
Government officials have been carrying out inspections at the firm’s facilities in recent days.
The scandal has dominated headlines in Japan and was a trending topic on social media, where it has also sparked disinformation posts and conspiracy theories.
Kobayashi Pharmaceutical is a household name in Japan, offering a wide range of health-related products.
The company has said it also sold red yeast rice to around 50 other firms in Japan and two in Taiwan.
Some of those companies have preventively recalled food products containing the ingredient, including a rose-coloured sake and a salad dressing.
Taiwanese companies have preventively recalled 154 products containing red yeast rice in the wake of the scare, the island’s health authorities said.
A woman in her 70s in Taiwan had also reportedly developed kidney failure after taking Kobayashi’s supplements for several years.