Snuggle fabric softener is amazing. I had the same issue, it works! Try it.
I have been adding a splash of white vinegar to loads of towels and wash cloths. Gets rid of the odor.
Meg Ruffman showed a product on tv it's called Concrobium Mold Control. Here is the part from the episode on youtube. http://www.youtube.com/watch?v=vv0L5R3FLXM
You can use it in the laundry. She talks about it at 2:40 of the video. There are a lot more other uses too for mold and the mold won't come back after it is applied.
let it dry under sun or put it on your heater.
Make sure to wash them through a heavy cycle in HOT WATER. Hot water is the key and adding a few tablespoons at least of baking soda. Scented fabric softener as mentioned would also work well.
We had that issue too. Other clothes come out clean but towels always started smelling after a couple of days of being washed. I have been using Borax and it seemed to wrk. It's inexpensive. It's just getting more difficult to find. 1/2 cup in the load even in an HE washing machine. Good luck!
I rewash the towels with some ammonia. it works every time and the towels never smell like ammonia. Use the ammonia in place of the laundry soap and wash with hot water. Trust me it works.
After they have soured the only thing that really works to take out the smell and keep it from recurring immediately is bleach. It kills the bacteria. Drying in a hot dryer helps also.
Purchase Odo Ban...Home Depot or on Amazon or Sam's Club a Gallon is $9.99. Add to your wash cycle with detergent. Non-toxic, but a mildewstat, disinfectant. Smells great! I use it for all my towels, washcloths, bedding. I have a friend who works on a dairy farm...she washes all of her farm clothes with it to remove the "farm" smell. You can use in a spray bottle to spray areas like carpets or furniture that needs a bit of freshening. I use in my carpet steam cleaner when I do my carpets in the spring & fall. Works great on pet odors and can be used anywhere in your house. Great stuff! I have bad allergies and I hate the smell of bleach. This is stuff is great!
I use 1 Tablespoon only of Pinesol at the beginning of the wash cycle, with he Liquid Laundry Soap. After drying in the dryer, there will still a 'little Pinesol scent' left but soon to disappear. Works on all kinds of washable odors. Remember: Only 1 Tablespoon!
I put vinegar in with my washing powders, it takes the smell out and kills the bacteria too...if it is real bad I will put vinegar in the fabric softer too.