The arrests marked the latest upset for the San Francisco-based technology company, which in March said it would help five convicted Uber drivers to appeal their court case in Hong Kong.
Police said they began an undercover operation in May and on Tuesday arrested 20 men and one woman between the ages of 21 and 59 for illegally driving a car for hire and driving without third-party risk insurance.
"I would like to stress that our law enforcement action is ongoing and we do not rule out further arrests," said Lau Tat-fai, a chief inspector of police in the Kowloon West district.
"We would like to say to the operator of the mobile phone application, as a responsible organization, you need to ensure cars for hire are equipped with a permit as required by Hong Kong laws. This is a basic responsibility to passengers and (shows) respect for Hong Kong laws," Lau said.
He said those who assist or instigate drivers might also have to bear legal responsibility.
A Uber spokesman said the company was "extremely disappointed" by the police action.
"We stand together with the twenty-one driver partners and their families, and will continue to provide assistance, including legal support, during this difficult time," the spokesman said.
Uber said it has a ridesharing insurance policy of up to HK$100 million per trip for riders and third-parties, which complies with local laws including Hong Kong's insurance regulations.
"Ridesharing should not be a crime. Hong Kong is an international city known for its embrace of global economic trends and new technologies, but current transportation regulations have failed to keep up with innovation," Uber said in an emailed statement.
Uber said it is committed to working with Hong Kong authorities, especially the incoming administration, to resolve the matter.
A court in March had found five Uber drivers guilty and fined them HK$10,000 ($1,287.91) each. It also revoked their driving licenses for a year, but that punishment was suspended upon the drivers' appeal.
Uber began a fierce publicity campaign following the verdict, posting advertisements on newspaper front pages and giving out plane tickets and Manchester United football jerseys to a few passengers.
The embattled technology company pulled out of Taiwan this year over mounting fines from regulators, but said last month it would resume services.