The Black Hawk Safety Net offered lessons on cyber attacks and sold Trojan software, which allows outside access to a computer when remotely installed, media reports said.
Police arrested three people who ran the Web site and charged 100 to 200 yuan ($14 to $29) for lessons, the China Daily newspaper said.
Established in 2005, the site had recruited more than 12,000 paid and 170,000 free members and collected more than 7 million yuan ($1.02 million) in membership fees, the reports said.
Authorities were tipped off to its existence while investigating a cyber attack in 2007. Some suspects arrested in that case were members of Black Hawk.
The suspects in the Black Hawk case were arrested under a law revised last year in response to cyber crimes.
China says hackers caused 7.6 billion yuan ($1.02 billion) in losses in the country last year.
Last month, online search giant Google threatened to pull out of China, saying Chinese hackers had penetrated some of its services in a politically motivated attempt at intelligence gathering.
China's information information technology ministry called the accusations of government involvement "groundless."
The Chinese government has said that the Google case is a business dispute and should not affect relations between Beijing and Washington.
Last month, foreign correspondents in at least two Chinese bureaus of news organizations had their Google e-mail accounts attacked, with e-mails forwarded to a mysterious address, according to the Foreign Correspondents' Club of China.