About 270 officers took part in more than 20 raids across 10 German states.
Widerstands Radio (Resistance Radio) broadcasts music and ideology reflecting neo-Nazi views - something which is illegal in Germany.
Prosecutors say those held face charges of forming a criminal organisation and inciting racial hatred.
Police said the suspects were in their 20s and 30s and were believed to have broadcast on the station, or helped to organise the broadcasts.
The Federal Crime Office (BKA) said the 24-hour station used a computer server in the US and listeners would register under false names and addresses.
"[The] investigations are a strong hint to people running other extreme-right internet radio stations that dissemination of songs with extreme-right wing and xenophobic lyrics, even on the internet, will be pursued," said BKA head Joerg Ziercke.
He said they had noticed a growing trend among far-right groups to use music to recruit young people.
Last month, the BKA said that over the past decade the number of people with the potential to carry out far-right violence in Germany had doubled to around 9,000.
The BBC's Stephen Evans in Berlin says the arrests come during an intense debate in Germany over immigration, particularly from Muslim countries.
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