Nigeria's army says it has found a private pipeline that was used to supply oil to a militant leader's home.
Ateke Tom is wanted for a string of robberies and kidnappings
The underground pipeline ran from a major oil refinery to a hideout in Rivers State of Ateke Tom, the head of the Niger Delta Vigilantes.
Mr Tom is accused of being behind much of the lawless money-making schemes causing havoc in the oil-rich region.
Correspondents say smuggling crude oil, known as bunkering, provides many militants with money to buy weapons.
The Niger Delta Vigilantes leader is wanted by the authorities for a string of bank robberies, incidents of piracy, stealing crude oil and kidnappings.
His present whereabouts is unclear, but contacted by the BBC by phone he denied laying the pipeline.
Some militants in Niger Delta claim to be fighting for a share of the oil wealth for the impoverished southern region.
Other gangs operating in the creeks are often more criminal than political, reporters say.
Nigerian military spokesman Lieutenant Colonel Musa Sagir said a large stockpile of weapons has also been found over the weekend at Mr Tom's abandoned home in a forest near Okochiri about 20km-30km from the regional capital, Port Harcourt.
The underground pipeline led from the oil refinery in the regional capital Port Harcourt to the militant hideout and continued to a private jetty where the oil was sold illegally, the army spokesman said.
But Mr Tom accused the military of trying to frame him.
He told the BBC that the soldiers wanted an excuse to remain in Okochiri - which he had left after a raid in December - so they too could profit from the illegal selling of oil.
Instability and violence in the Niger Delta region over the past few years have led to a significant drop in Nigeria's oil exports.
The BBC's Abdullahi Kaura Abubakar in Port Harcourt says taking hostages for ransom is now a common practice.
Foreigners, the main target in recent years, now travel under armed guard and local school children are the latest victims.
On Monday morning, a six-year-old was kidnapped by unknown gunmen. Hostages tend to be released after a ransom is paid.
Mr Tom has claimed he was hired to rig elections in 2003 but says politicians have failed to live up to their promises.