The arrests were carried out in a joint operation with Australian police.
"We also found documents which indicate that military wings of Jemaah Islamiyah still exist in Indonesia", Suryadarma Salim, the head of Indonesia's anti-terrorism task force, said.
Officials said the explosives were enough to make a bomb much larger than the ones used in the Bali attacks.
John Lawler, the deputy commissioner of the Australian Federal Police said the raids were a "significant milestone" for efforts to contain and counter the threat posed by terrorists.
|The suspects were flown to Jakarta |
amid tight security [EPA]
The seven suspects have now been flown amid tight security to Jakarta for interrogation.
One other suspect was shot dead during the police raids.
"We're bringing them to Jakarta so we can interrogate them further," General Sutanto, Indonesia's police chief, told reporters.
"We want to learn everything we can about this network."
Indonesian and Western intelligence officials say the JI group has close links to al-Qaeda and is seeking to create by force an Islamic state across South-East Asia.
Despite hundreds of arrests in recent years, authorities say JI still has the ability to carry out attacks.
Abu Dujana, the group's alleged current leader who learned bomb-making skills in Afghanistan, remains at large, as does Noordin Top, JI's alleged operations chief.