Authorities detained the ship, Jian Hua, near the Pacific port of Manzanillo after it had departed from the port of Lazaro Cardenas.
An anonymous tip led to the seizure.
Illegal ore is usually trafficked to China, and Lazaro Cardenas is a popular port used by drug traffickers.
The mayor of Lazaro Cardenas was arrested Tuesday on suspicion of ties to the Knights Templar drug cartel. The town treasurer was also arrested.
Knights Templar are known iron ore smugglers, in addition to trafficking methamphetamine to the U.S.