The website reportedly recruited people online and taught hacking techniques its 12,000 members.
The website also reportedly provided them with malicious software such as Trojan horses - which, when implanted, can allow outside access to a computer - in exchange for a fee.
The business collected more than $1m in membership fees, while another 170,000 signed up for free membership, the China Daily newspaper said.
The report said police seized nine servers, five computers and a car, and shut down all websites involved in the case. Authorities also reportedly froze $250,000 in assets.
Last month Google, the US-based internet search giant, said that email accounts, some of them used by Chinese dissidents, were hacked from mainland China, in an assault that also hit at least 20 other companies.
Chinese officials have defended China's online censorship and denied involvement in internet attacks episode saying it does not condone hacking.
The government said China is the biggest victim of web attacks.
The arrests come amid a growing concern that China is turning into a global centre for internet crimes.
Wuhan, where the story originated, happens to be home to the Communication Command Academy, which trains hackers, according to US congressional testimony by cyber expert James Mulvenon in 2008.
The popularity of hacking in China, and hackers' use of multiple addresses and servers in Taiwan and elsewhere, makes it hard to prove how or by whom they are co-ordinated.
China's ministry of industry and information technology said hackers tampered with more than 42,000 websites last year.