The group was confronted by a police party on a specific information at village Pushroo in Achabal, about 70 kms from here, and a toy pistol was recovered from them, a police spokesman said.
He said the extortionists, wearing police uniforms, were roaming in the area in a private vehicle and extorting money from the locals.
The spokesman identified the arrested extortionists as Abdul Jabbar Lone, Reyaz Ahmad Shah and Mushtaq Wani, all residents of Chenani village of Udhampur district in Jammu region.
He said the vehicle was also seized by the police.