Customs officers working with the police raided remote farm buildings in Rathfriland on Sunday.
They seized equipment that was capable of laundering fuel worth an estimated £25,000 a week.
Two fuel tankers and 10,000 litres of laundered fuel were also seized along with 4,000 litres of acid residue, which is used to change the colour of the diesel.
"This operation is another significant hit on the illegal fuel trade and shows the benefit of close working with the Police Service of Northern Ireland," said a customs spokesman.
"We have repeatedly warned motorists to think before buying cheap fuel.
"It puts honest fillings stations out of business, robs the taxpayer of money for public services and puts the motorist's vehicle at risk of serious engine damage," he said.
"Laundering plants bring additional dangers, as the acid residue is often dumped without regard to the local environment."
Fuel laundering involves changing the colour of agricultural diesel, which is red in the United Kingdom and green in the Irish Republic.
The diesel for agricultural use is rebated and costs significantly less than the white coloured road diesel.