President William Ruto's chief of staff Felix Koskei said 27 people had been suspended including the head of the Kenya Bureau of Standards as well as police officers, and officials from the tax and food authorities.
"It is manifest that some officers in the relevant agencies abdicated their responsibilities, at the risk of public harm," he added.
Koskei said in a statement late Wednesday that the consignment had been imported in 2018 but was condemned as expired.
It had been earmarked for conversion into industrial ethanol but despite being condemned as "unfit for human consumption," the sugar was released into the market in what Koskei described as an "irregular and criminal" act.
Sugar prices have soared in Kenya, with local media reporting that the retail price had risen by around a third in the last month to more than 400 shillings (about $3) for a two-kilo bag.
The government is also planning to introduce a new tax on locally-produced sugar, in a finance bill that is targeting a wide range of products in a bid to boost revenues.
The East African country is suffering a severe cost-of-living crisis with rising prices of many basic goods such as fuel and food, while the local currency is at record lows.
