The coast guard said the vessels were detected at 5.30am, they were not flying any national flags, had switched off automatic I.D. systems and didn't respond to radio.
Spokesman Wisnu Pramandita said the ships were 'caught red-handed' transferring oil from Horse to Freya and that there was an oil spill around the receiving tanker.
He added that 61 crew members onboard the vessels were Iranian and Chinese nationals and had been detained.
The United States has imposed an economic strangle-hold on Iran since 2018 after it breached its nuclear commitments, hamstringing its oil exports to the world.
Experts estimate Tehran ships out less than 300,000 barrels of crude per day, compared to a peak of 2.8 million daily two years ago.
Iranian Foreign Ministry spokesman Saeed Khatibzadeh said today that the seizure was over a 'a technical issue and it happens in shipping field'.
'Our Ports Organisation and the ship owner company are looking to find the cause of the issue and resolve it,' Khatibzadeh told a televised weekly news conference.
The International Maritime Organization requires vessels to use transponders for safety and transparency.
Crews can turn off the devices if there is a danger of piracy or similar hazards. But transponders are often shut down to conceal a ship's location during illicit activities.
Both the supertankers, each capable of carrying 2 million barrels of oil, were last spotted earlier this month off Singapore, shipping data on Refinitiv Eikon showed.
Very Large Crude Carrier (VLCC) MT Horse, owned by the National Iranian Tanker Company (NITC), was almost fully loaded with oil while VLCC MT Freya, managed by Shanghai Future Ship Management Co, was empty, the data showed.
NITC was not immediately available for comment.
A search by Reuters on Chinese company directory found that the registered office address of Shanghai Future Ship Management Co came under another firm named Shanghai Chengda Ship Management. Calls to the office went unanswered.