Two men and four women were arrested on Wednesday and another person was arrested yesterday.
Some of the alleged fraudsters, aged between 23 and 48, are family members and managed, or provided, day care services in Melbourne's western suburbs of Point Cook and Wyndham Vale.
They have been charged with many offences including conspiracy to dishonestly cause a loss to the Commonwealth.
The claims, dating back to March 2014, mostly related to the grandparent childcare benefit scheme.
Police have withheld around $1.1 million of assets belonging to those arrested.
Australian Federal Police Commander Peter Crozier described the fraud as the largest of its kind the AFP had uncovered this year.
"The arrests actually occured as a result of a number of search warrants that were undertaken in Melbourne by members of the AFP with members of other partner agencies involved in this investigation," he told SBS Radio's Dinka program.
"Primarily these individuals that were subject of arrests were considered the main targets of an alleged fraudulent scheme against the Commonwealth, which was related to the grandparent childcare benefit process."
The arrests follows a joint investigation involving the Australian Federal Police, Department of Human Services, Department of Education and Training, Taskforce Integrity and the Victoria Department of Education and Training.
The Victoria government said it will not tolerate people in the childcare industry acting inappropriately or failing to comply with regulations.
"We will investigate any claims of illegal childcare services or improper behaviour, take action to shut down offenders and where necessary, bring them before the courts," a spokesperson for the state's Department of Education and Training said in a statement.
Police have not ruled out further arrests as inquiries continue.
Australian Federal Police Commander Peter Crozier said Taskforce Integrity has a mandate to prosecute people for welfare fraud across Australia.
"And it is important in that regard that if there are people in the community who are concerned about fraud that is being committed, or has some knowledge that may assist authorities, that they would come forward and speak to agencies about their concerns."
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