Environmental campaigners said they warned authorities about a medical waste disposal site in Normanton, which was recorded as being five times over its capacity.
Human limbs were among the waste disposed at the town's Healthcare Environmental Services site and the firm was been found to be in breach of its permits at five sites in England that deal with clinical waste. A criminal investigation has now been launched, the Environment Agency said.
Campaigner Paul Dainton, whose RATs campaign group has fought against Welbeck landfill site for 20 years, said he warned of the risks at the Loscoe Close site.
He said: "We stood outside of that building when it opened and warned them about what might happen and how Normanton would be taken for a ride, but no one listened.
"Between this and Welbeck tip, Normanton has become a dumping ground for anything that nowhere else in the country will accept. It was even worse than I thought and that's saying something."
The Department of Health and Social Care (DHSC) said there is "absolutely no risk" to public health and it is believed the waste was stored securely, but was not being processed and disposed of within the correct regulatory timeframes.
But Mr Dainton questioned how the health risks could be properly assessed.
He said: "How can they say there is no risk there is waste left out there for days and days after it has been transported here? How can they possibly know?"
Healthcare Environment Services said the UK had experienced "reduced incineration capacity" over the last year, which it had repeatedly highlighted to authorities.
An Environment Agency spokeswoman said: "The Environment Agency has found Healthcare Environmental Services to be in breach of its environmental permits at five sites which deal with clinical waste.
"We are taking enforcement action against the operator, which includes clearance of the excess waste, and have launched a criminal investigation.
"We are supporting the Government and the NHS to ensure there is no disruption to public services and for alternative plans to be put in place for hospitals affected to dispose of their waste safely."
A Government spokesman said: "We are monitoring the situation closely and have made sure that public services - including NHS Trusts - have contingency plans in place. There is absolutely no risk to the health of patients or the wider public.
"Our priority is to prevent disruption to the NHS and other vital public services and work is under way to ensure organisations can continue to dispose of their waste safely and efficiently."
A spokesman for Healthcare Environmental Services said: "Healthcare Environmental has highlighted the reduction in the UK's high-temperature incineration capacity for the last few years.
"This is down to the ageing infrastructure, prolonged breakdowns and the reliance on zero waste to landfill policies, taking up the limited high-temperature incineration capacity in the market.
"Over the last year, this reduced incineration capacity has been evident across all of the industry and has affected all companies."
Health Environment Services Ltd (HES) operate the private waste disposal site in Normanton. The Environment Agency (EA), who are responsible for monitoring and regulating this business, has found HES to be in breach of its permit at the Normanton site.
Wakefield Council has no statutory powers relating to the regulation of the site.
A spokeswoman said the council had responsibility for monitoring air pollution across the district and but there were no current about air quality in this area. She added: "We will continue to monitor this."
Glynn Humphries, service director for environment, streetscene and Property said: “Our waste partner, Renewi, has a contract with HES for the disposal of the Council’s clinical waste. Renewi is now liaising with the Environment Agency to identify alternative provision to manage the clinical waste affected by the EA’s enforcement action.
"Renewi has given us assurance that they will do all in their power to ensure there is no negative impact on our clinical waste disposal and that the waste will be managed safely and efficiently.”
“I would like to reassure people that there will be no disruption to our customers who receive a clinical waste collection from Wakefield Council. We know how important this service is to those who need it and have made sure that plans are in place to manage the situation.”