Police also searched 17 locations and found arms as well as proof that they had been KLA members, said Ivica Dacic, the interior minister.
The so-called "Group of Gnjilane" is believed to have kidnapped 159 Serb civilians and killed at least 51 people between June and October 1999, a statement from the office of prosecutor Vladimir Vukcevic said.
The suspects are also wanted for the alleged "rape, incarceration, mutilation, torture, and plunder" of Serb and non-Albanian civilians, Vukcevic's office said.
Dacic said the leaders of the group remained at large as they were believed to be in Kosovo.
"The three leaders of the 'Group of Gnjilane'... are out of reach of Serbia's security forces. They live in Gnjilane and Serbia and will demand UNMIK [the UN mission in Kosovo] to bring them to justice as there is evidence against them," Dacic said.
After the end of the Kosovo conflict in June 1999 following a Nato bombing campaign, the southern Serbian province was placed under UN and Nato control.
The Presevo valley, situated on Serbia's southern border next to both Macedonia and Kosovo, is a predominantly ethnic Albanian area where clashes occurred in 2000 and 2001 between Serbian forces and local separatists.
It remains tense more than seven years after the conflict has ended with the Nato-brokered peace accords that gave Albanian political community more rights.
Riza Halimi, a local ethnic Albanian leader and the only Albanian deputy in the Serbian parliament, said the action "does not contribute to the stabilisation of the region".
Halimi accused police of extended use of force, but Dacic said the operation was recorded by video cameras in order to avoid possible complaints of human rights violations during the arrests.
The ethnic Albanian authorities of Kosovo declared independence in February in a move that was soon recognised by more than 50 states, including the US and most EU countries.
Belgrade considers the move illegal and is backed by its chief ally Moscow.