The 13-year-old girl, who hails from Motihari in Bihar, was rescued from the hotel at Shantinagar on the outskirt of Kathmandu on the basis of a tip-off yesterday.
A special police team had raided the hotel and arrested two persons who were operating prostitution business illegally in the cover of the hotel.
They have also arrested a 20-year-old Indian girl, also from Motihari, who had been working as a sex worker in the hotel.
Three Nepali girls, all in their twenties, and a local client Mahato were also taken into custody.
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The police have handed over the minor, who was brought to Kathmandu on the pretext of providing her a good job, to Rakshya Nepal, a non-governmental organisation working for women's welfare.
The police have also filed cases against the three Nepali girls, the elder Indian girl and the male client, under public offence act.
Two owners of the hotel Armika Mahato and Rita Yadav have been arrested under human trafficking acts, according to Kathmandu Metropolitan Police Circle.