At least 21 women aged 18-42 were freed during a police raid on several apartments in the Kuala Lumpur suburb of Bandar Sunway, a report in The Star newspaper said.
All the women have been placed at a welfare home and will be returned to Uganda after police investigations are finished.
The raid, arrests and freeing of the women come after a senior government adviser warned that people trafficking is harming the country's international image and endangering relations with its neighbors.
Police had the apartments under surveillance for two weeks before raiding them, said federal criminal investigations director Cmdr. Datuk Seri Mohd Bakri Zinin.
"They were basically slaves and if they wanted to be free from the syndicate's clutches they were told they had to pay a debt bondage of $7,000," he said.
Clients paid up to $100 a night to be with them.
Often after the women paid off their debt bondage, they were kept enslaved.
The women from Kampala, Uganda, were lured to Malaysia with promises of lucrative jobs in hotels, opportunities to study in colleges and work as maids with a salary of $1,000, said Zinin. They were given free passports, flight tickets and other documents.
But the reality was they worked for up to 10 hours a day as prostitutes for at least three months, often being beaten and raped by their captors, he said.
The raid followed a report lodged by a victim who had related her ordeal to a Ugandan embassy official who reported the allegations to police.
Two women in their 40s believed to be working for the ringleaders were arrested, as well as an African customer, police said.
One of the women said the group left Uganda for China where they worked as sex slaves for a month before being taken to Kuala Lumpur.
Last week a Malaysian court sentenced a Malaysian and his Filipino wife for trafficking in three Filipino women for prostitution, Bernama news agency said.
Kwong Tuck Choy and Nancy Pahim Nayan Rillera were sentenced to eight years in jail and fined nearly $4,800 each by a court for trafficking the women in 2009.
At the time, two of the women were 23 and one was 24. They were repatriated to the Philippines after they testified in court against Choy and Rillera, the Bernama report said.
The Philippine Embassy welcomed the Malaysian court decision to convict the traffickers.
"The vigorous prosecution undertaken by the Public Prosecutor's Office is a clear manifestation of the host government's resolve in addressing trafficking in people, particularly its worst form, for prostitution," Ambassador J. Eduardo Malaya said. "We are grateful for the full attention the authorities have given to this case."
This week government adviser Professor Azizah Kassim from the Institute of Malaysian and International Studies said increasing human trafficking and migrant smuggling will bring negative economic impacts to Malaysia.
"The rise of such incidences particularly in recent years will tarnish Malaysia's reputation in the international arena," said Azizah, a member of the Council of Anti-Trafficking in Persons and Anti-Smuggling of Migrants.
Apart from prostitution, the trafficked people add to pool of cheap labor that sets Malaysia apart as a low-cost manufacturing country.
She called on the government to throw more resources in terms of financial and manpower, to combat trafficking.
Illegal trafficking cases before the courts include sexual exploitation, forced labor, immigration violations and sales of babies.
Apart from undermining the rule of law and internal security, she said it created diplomatic rifts between the source country of the people being trafficked as well as transit countries over the treatment of trafficked victims.
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