The three men - identified as Velmurugan (20), a law student from a village near Periakulam, Palanivel (22), an onion merchant from Chokkampatti village near Salem, and Muthu Selvam (26), an engineering student, were picked up from Murugan Malai early Tuesday.
Police said efforts were on to trace seven others including group leader Raja, who belonged to a Maoist gang. They were believed to be hiding in Kadalamalaikundu area of Madurai district.
Senior police officers said preliminary investigations point to a 'possible nexus' between this gang and Maoist activists of India and Nepal.
As many as 66 hand grenades, detonators, self-loading rifles and 15 kg of chilli powder were seized from their hideout, Deputy Inspector General of Police (Madurai Range) D. Nandagopal told the media.
'The youths have confessed that they had been recruited by the PWG (People's War Group) to create a 'liberated zone' in the hills,' Nandagopal told IANS.
'Questioning the arrested youth, we learnt that they have links with Maoists in Andhra Pradesh, Bihar and Nepal. We have seized maps of Chennai and Madurai along with some blueprints of vital civilian installations from them,' he said.
Police said the men were receiving arms training in a camp in the Kodaikanal hill ranges before coming to Madurai district and they moved to Muruga Malai about 10 days ago.