Cleric Mohammad Wahab and three Afghan fighters were also arrested, Major-General Athar Abbas, the military's chief spokesman, said.
"The army raided the seminary on an intelligence tip-off that a meeting of terrorists was in progress there," Athar Abbas told AFP.
Sufi Muhammad struck a deal with the NWFP government in February to restore peace to Swat and surrounding areas by proposing to put three million people under Islamic law.
But the deal collapsed in May when Taliban fighters advanced to districts within 100km of Islamabad more than six weeks ago.
Under US pressure, Pakistan launched an offensive against Taliban fighters in the districts of Lower Dir, Buner and Swat after what Islamabad called violations of a ceasefire.
The military has since said it has retaken large swaths of the region from the Taliban and is close to routing the group.
But some residents have expressed anger at what they say is the high civilian toll and massive destruction from the army offensive.
The offensive has left an unknown number of people dead and displaced around 2.4 million people, according to the UN, in what rights groups call the largest internal displacement in more than half a century.
|Richard Holbrooke, right, called for urgent action to avert a humanitarian crisis [Reuters]
Richard Holbrooke, the US special envoy, who visited refugee camps in the Swat valley on Thursday to see the humanitarian crisis first-hand, urged European and Muslim nations to help avert a humanitarian crisis.
"What I can't stress too highly enough is the job to get them home, and that requires security and assistance from the rest of the world community," he told reporters at the Shah Mansoor Camp, 80km northwest of Islamabad.
"The reconstruction phase is going to cost as much as the humanitarian phase."
Holbrooke is scheduled to meet Pakistani leaders on Friday to discuss the next phase of holding, securing and rehabilitating Swat after it has been cleared of the Taliban.