Police say they have detained 22 people for selling stolen fuel and running 13 illegal gas stations in Pudong's Lingang area.
The suspects stole diesel from trucks or bought fuel from other illegal oil dealers, police say, adding the gang operated late at night in Luchaogang Town, mostly along Tongshun Avenue.
In a raid at the end of last month, Pudong police found eight containers of diesel and a few vehicles, also used to store fuel, within a square kilometer.
It is estimated that each container contained up to 10 tons of diesel.
Police said the diesel was sold at 4.3 yuan (.60) per liter, about 25 percent lower than the market price, and an illegal gas station could make a profit of hundreds of thousands yuan in a year.
Some illegal gas stations had even signed contracts with transport delivery companies, and the earliest illegal gas businesses in the area appeared about two years ago, police said.
They started investigation earlier this year amid rising complaints from residents about trucks lining up outside the illegal gas stations, blocking streets at night.
The diesel pumped from the illegal gas stations was "problematic," police added, with the amount of sulfide contained failing lab tests, meaning it was less environmentally friendly than its authentic counterpart.
Such illegal business was considered dangerous because any fire at the gas stations could have led to loss of life and property, police said.
They added several of the suspects running the illegal gas stations were from the same family.