The Star newspaper, quoting unnamed sources, said on Tuesday that the men, mostly Indonesian and described as Islamists, were arrested recently after six months of police surveillance in the Malaysian state of Sabah, on Borneo island.
Malaysia's police special branch were not immediately available for comment.
Indonesia, which has suffered terrorist attacks in Bali and Jakarta, welcomed the report on Tuesday, saying it would help to weaken militant networks in the region.
Hassan Wirajuda, the Indonesian foreign minister, told reporters during a visit to Malaysia: "I believe this is a good sign and an important step to fight terrorism".
He said that Indonesian police with the co-operation of their Malaysian counterparts had arrested several people a few months ago for smuggling explosive materials from Sabah into Indonesia.
Regional police forces had been monitoring suspicious groups on Borneo island and in the southern Philippines, he said.
The Star said police had seized firearms and documents from the men, including bomb-making instructions downloaded from the internet.
The men included at least two Malaysians and had been travelling through Sabah when police caught them, it said.
"However, it is not immediately known what the group's targets were or when its plans would be executed," the Star said.
"I believe this is a good sign and an important step to fight terrorism"
Hassan Wirajuda, Indonesian foreign minister
The men belonged to Indonesia's Darul Islam movement, it said, but Wirajuda said that group had ceased to exist long ago.
"We don't have a formal organisation called Darul Islam anymore since it was defeated in the 1960s," he said.
"But as an ideology, as a political orientation, it remains clandestinely upholding this aspiration for an Islamic state."
Darul Islam, which wants to establish an Islamic state in Indonesia, is seen by security experts as the well-spring of militant splinter groups such as Jemaah Islamiah, which is suspected of having carried out bombings in Indonesia.