The suspect was arrested following a police raid on a residential complex in central Jerusalem, where women and children between the ages of 1-5 are reported to have been isolated from their families and abused in a cult-like group.
Israel police said the man, who is in his 60s but has not been named, is suspected of punishing the women who were held there and stealing money from them.
The raid was carried out in coordination with the Israeli Centre for Victims of Cults.
Eight female accomplices who allegedly worked with the rabbi have also been arrested, police said.
The suspect has been arrested on suspicion of leading the group and “committing severe offences” against those under his influence.
“We know that the women and children were there for several months inside the home,” Micky Rosenfeld, an Israeli police spokesperson, said.
“We know that he took their money away from them and was holding them against their will.”
Superintendent Isaac Simon added that the victims were held in “very cramped conditions and difficult sanitary conditions.”
At a hearing on Monday, a police official said women in the complex were forced to seek “the cult leader’s approval for every basic activity, and to consult him about everything”, according to Israel’s Haaretz newspaper.
The official reportedly said women were treated well when they joined the group but were then subjected to threatening lessons and distanced from their families and the outside world.
In one example, women were apparently forced to put their fingers in a fire “to understand what hell was like”, Haaretz reported.
Police have said they investigated the complex, which reportedly posed as a women’s seminary, for two months to gather evidence before the raid.
A report by Israel’s Channel 12 said the suspect had previously been arrested at least twice on similar charges and denied any wrongdoing in those cases.
He has denied any wrongdoing and dismissed the current allegations as “beyond rubbish”, according to the Israeli news website Ynet.
Additional reporting by AP