The Government Logistics Department (GLD) on Monday terminated a bottled water supply contract awarded to a company for certain government premises with immediate effect, following the arrests of two people linked to the firm.

In a statement, the department said it does not believe that Xin Ding Xin Trade Co., Limited (XDX) is capable of fulfilling the contract, citing information about company's business operations and the police's latest enforcement action.

"Therefore, in accordance with contract terms, the GLD decided today to immediately terminate the relevant contract as well as three other contracts for supply of chemicals which were affiliated with XDX's owners," it said.

Officials also said they will improve the procurement mechanism and start a new round of tender to find a "suitable" bottled drinking water supplier for offices on Hong Kong Island and some outlying islands.

For the time being, authorities have arranged for AS Watson Group to supply bottled drinking water to the affected premises.

Earlier in the day, police said they have arrested a couple – a director of a trading company and his shareholder wife – on suspicion of fraud.

Officers are also looking for a mainland man in connection with the case.