Urumqi, capital of the Xinjiang region, has been struggling to return to order after days of panic and protests over claims that Muslim Uighurs used syringes to attack residents, especially members of China's Han ethnic Chinese majority.
Officials have said five people died in the protests, but they have not said how they died.
Security forces used tear gas to break up a crowd of Han Chinese on Sunday, after a fresh needle scare near a wholesale market. Witnesses said three Uighurs were beaten.
The government has cast the alleged syringe attacks as a separatist plot by Uighurs, who call Xinjiang their homeland. Many Uighurs resent government controls on their religion and culture, as well as the growing presence of ethnic Han Chinese.
The Xinhua news agency reported on Sunday that Urumqi authorities said anyone found guilty of injecting others with dangerous substances could face a long prison term or even the death penalty.
The full notice from the law-and-order authorities, reported in a later Xinhua report, also warned residents they face possible jail terms for rumor-mongering.
"Those who deliberately concoct and spread false information about innocent members of the public being stabbed with needles" could be tried and sentenced to up to five years in jail, said the notice, according to Xinhua.
The announcement appeared to be another step in government efforts to restore its authority in Urumqi, where thousands of Han Chinese residents took to the streets to demand the ousting of Wang Lequan, the Communist Party secretary of Xinjiang for 14 years.
In China, Communist Party secretaries are the most powerful officials at each level of government.
Wang appears likely to survive the tumult for now at least, but the Communist Party chief of Urumqi and the Xinjiang police chief were both dismissed over the weekend. Some Han Chinese residents of Urumqi said they were still not satisfied.
"I felt the government should have been able to control the situation very well. But in reality, the situation is not under control," said one Urumqi resident, who gave only his surname, Feng.