The State Internet Information Office said many of the websites claimed to serve anti-corruption and law enforcement agencies, Xinhua reported.
The website operators would fabricate negative news stories and threaten to post them online if the organisations or individuals targeted did not pay "hush money", it said.
Counterfeit media licenses and journalist certificates were also on sale for thousands of yuan.
Some of the websites even formed alliances to jointly demand ransom from organisations, companies and individuals. Four suspects have been arrested.
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