The chief minister of Punjab province, Shahbaz Sharif, ordered a judicial inquiry into reports that hundreds of children had been abused over a period of several years.
Local media say a gang made videos showing the abuse of children, whose parents were then subject to blackmail.
The scandal centres on a village near the city of Kasur.
Reports say about 280 children, mostly under 14-years-old, were abused and d, in the village of Husain Khan Wala.
Correspondents say many victims are afraid to report abuse, in a society which allows abusers to brag about their exploits but stigmatises their victims.
Police say more arrests are expected.One boy told BBC Urdu the abuse began when he was 11, five years ago:
"They sexually abused me in front of secret cameras... they came back a week later and showed me the video, and said if I did not do what they wanted, they would show it to my friends and school colleagues."
A woman told the BBC her son had been molested and blackmailed for five years, and she had only recently learned about the abuse:
"They used to badly treat him wherever they could get hold of him. They would snatch his mobile and money.
"They [the perpetrators] are now threatening us."