As per sources, they had been operating the racket at Hotel Harish near Arya hospital.
The two arrested individuals have been identified as Tensubam Leaishemba Meitei and Nepram Somendro Shing, both hailing from Manipur.
Police seized 20 nos of fake Rs 500 notes and also two mobile phones from their possession.
Meanwhile, a case under IPC section 489 has been registered against the duo at Paltan Bazar police station.
It is suspected that the arrested individuals are involved in large scale supply of counterfeit money in the city.