A source close to Interior Minister Dominique Villepin said the five men and two women were arrested by the DST domestic intelligence agency on Monday in Paris.
The seven remain in custody in the DST's headquarters pending further investigation.
"This operation has allowed us to completely smash this network," the source said. "This is the first operation of its kind, and an important one. The fight against radical Islamic groups is one of the interior minister's priority."
A formal judicial investigation into recruitment networks was opened following the death in Iraq of a number of French nationals.
The number of foreign fighters in Iraq remains a matter of speculation.
The French daily Le Monde last month quoted intelligence services as saying there were about 1000-2000 fighters in Iraq from Jordan, Syria, Saudi Arabia, Yemen and Kuwait.