Thirty-two pregnant girls were rescued from a maternity home run by a trafficking ring in the southern city of Aba, police said.
The girls, mostly of school age, were allegedly locked up at the Cross Foundation clinic so they could produce babies to be sold for illegal adoption or for use in ritual witchcraft.
Bala Hassan, the Abia state police commissioner, said: "We stormed the premises of the Cross Foundation in Aba three days ago following a report that pregnant girls aged between 15 and 17 are being made to make babies for the proprietor.
"We rescued 32 pregnant girls and arrested the proprietor, who is undergoing interrogation over allegations that he normally sells the babies to people who may use them for rituals or other purposes."
Hassan added that four babies, already sold in an alleged deal but not yet collected, were also recovered in the raid.
Estimates of the girls' ages varied. Geoffrey Ogbonna, another police spokesman, was quoted by CNN: "There are about 30 pregnant young ladies; the eldest was 20 years old. Some belong in secondary, even in primary school."
A doctor arrested at the clinic said the babies had been handed over to social welfare for adoption.
Some of the rescued girls told police that the hospital owner gave them $192 (£118) for newborn boys and $161 for newborn girls after they were sold.
Dr Hyacinth Orikara, proprietor of the Cross Foundation, is likely to face charges of child abuse and human trafficking, police said. Buying or selling babies can carry a 14-year jail sentence.
Orikara, reportedly a university graduate and employee of the Abia state health management board, denied the allegations, claiming the home was a foundation to help teenagers with unwanted pregnancies.
Human trafficking is ranked the third most common crime in Nigeria after financial fraud and drug trafficking. At least 10 children are sold every day across the country, according to the UN. Traffickers are seldom caught.
Babies are sold for up to $6,400 each, depending on the sex, the National Agency for the Prohibition of Trafficking in Persons says. Teenagers with unplanned pregnancies are sometimes lured to clinics and then forced to hand over their babies.
The children are often put up for illegal adoption or, in some parts of the country, killed as part of witchcraft rituals because they are thought to make charms more powerful.
The police carried out similar raids on such clinics in neighbouring Enugu state in 2008.
A Nigerian woman was jailed in Britain three years ago for trying to smuggle a baby into the country in order to get on the list for a council flat.