Authorities said they arrested 60 people including 13 tribal elders.
Residents in the north-western town of Wana told journalists on Monday of a curfew-like situation in the semi-autonomous region of South Waziristan district.
Authorities sealed around 8,000 shops, preventing owners and consumers entering.
"No-one is allowed, not even shopkeepers can enter the bazaar," resident Muhammad Shahzad told French news agency AFP.
"People are facing shortages of essential goods. The prices of staple wheat flour, meat and vegetables have almost doubled."
The economic blockade came as successive deadlines for the handover of an estimated 500 suspected al-Qaida fighters passed unheeded, officials said.
"Militants had been visiting this place regularly and the bazaar in Wana had emerged as a meeting point for foreigners. We cannot allow this situation to continue," local administration chief Ismat Allah Gandapur said.
He also blamed fighters for looting a Pakistani bank branch in Wana two months ago.
"People are facing shortages of essential goods. The prices of staple wheat flour, meat and vegetables have almost doubled"
"They looted 15.3 million rupees (260,000 dollars) from the bank," he said referring to 15 masked gunmen who fled into the mountains after the robbery.
Gandapur said the government had no choice but to impose the blockade because elders from the local Wazir tribe had failed to turn over suspected fighters.
He warned that if the Wazir tribe's Yargulkhel and Zelikhel clans failed to cooperate, "authorities may demolish the whole bazaar."
Political solution possible
Despite the threats of military action, Gandapur added that a political solution could still be achieved.
"The tribesmen still have a chance to respond positively and bring the situation back to normal."
Residents said heavy weaponry camouflaged by military tents had been positioned on hills overlooking tribal villages and troops had been deployed in new bunkers.
The Pakistani army lost at least 46 troops in a 12-day siege and search operation in the area in March, leading the government to seek a political rather than military solution.
The government allowed hundreds of foreigners to stay in the tribal terrain if they denounced violence and registered with the authorities.
However, none have registered despite the expiry of several deadlines.