One Spaniard and eight Moroccans were arrested in the early morning raids carried out by authorities in Spain's northern African enclave of Melilla and in the neighbouring Moroccan town of Nador, Spain's El País newspaper reported.
The men allegedly belong to a group that organized the recruitment of jihadists to fight for Isis in Iraq and Syria.
Several of the men had seen combat in Syria while all had received military training, sources within Spain's interior ministry told Spain's El Mundo newspaper.
The single Spaniard is thought to be the head of the terror cell. Online daily 20minutos originally reported sources close to the investigation as saying he was formerly a soldier in the Spanish Legion, an elite unit of the Spanish army.
The paper later reported the suspect was in fact the brother of a solider with the Spanish soldier
The operation remains ongoing, Spain's interior ministry said in a brief statement. Police are currently carrying out a search at the cell leader's home in Melilla.
Thursday's arrests are the latest in a series of similar operations in 2014, as Spanish and Moroccan authorities crack down on terrorist groups operating in and around Spain's North African enclaves of Ceuta and Melilla.
Moroccan authorities estimate there are between 1,500 and 2,000 Moroccan jihadists fighting in Syria and Iraq. Spain has arrested dozens of suspected extremists in raids this year.
A US-led alliance has launched air strikes against the IS militants in Syria and Iraq.
Spain also plans to deploy 130 soldiers and anti-ballistic missiles to Turkey's southern border but won't take part in any actual fighting against terror group Isis in Iraq and Syria, the country's Defence Minister has announced.
Spain's foreign minister José Manuel García Margallo recently announced plans to amend the country's penal code so that Spaniards joining foreign conflicts and radical Islamic groups such as ISIS can be prosecuted on terrorism charges.
More to follow