The British-flagged yacht, Madleen, operated by the pro-Palestinian Freedom Flotilla Coalition, was aiming to deliver a symbolic amount of aid to Gaza later on Monday and raise international awareness of the humanitarian crisis there.
However, the boat was boarded during the night before it could reach shore, the coalition said on its Telegram account.
The Israeli Foreign Ministry later confirmed it was under Israeli control.
"The 'selfie yacht' of the 'celebrities' is safely making its way to the shores of Israel. The passengers are expected to return to their home countries," the ministry wrote on X.
All passengers were safe and unharmed, the ministry later added.
"They were provided with sandwiches and water. The show is over."
Among the 12-strong crew are Swedish climate campaigner Thunberg and Rima Hassan, a French member of the European Parliament.
"The crew of the Freedom Flotilla was arrested by the Israeli army in international waters around 2am," Hassan posted on X.
A photograph showed the crew seated on the boat, all wearing life jackets, with their hands in the air.
The yacht is carrying a small shipment of humanitarian aid, including rice and baby formula.
The Foreign Ministry said it would be taken to Gaza.
"The tiny amount of aid that was on the yacht and not consumed by the 'celebrities' will be transferred to Gaza through real humanitarian channels," it wrote.
Israeli Defence Minister Israel Katz ordered the military on Sunday to prevent the Madleen from reaching Gaza, calling the mission a propaganda effort in support of Hamas.
Katz said he had instructed that upon the boat's arrival at Ashdod port, the activists will be shown videos of atrocities committed during the October 7, 2023, Hamas-led attack on southern Israel, which triggered the Gaza war.
Hamas condemned the seizure of the boat as "state terrorism" and said it salutes its activists.
Israel imposed a naval blockade on the coastal enclave after Hamas took control of Gaza in 2007 to stop weapons from reaching the militant group, which is designated as a terrorist organisation by Israel and the West.
The blockade has remained in place through multiple conflicts, including the current war, which began when Hamas-led militants rampaged through southern Israel on October 7, 2023, killing more than 1200 people and taking 251 hostages, by Israeli tallies.
Israel's retaliatory offensive against Hamas has since killed more than 54,000 Palestinians, according to health officials in Hamas-run Gaza and left its more than 2 million population largely displaced and at risk of famine, according to the United Nations.
The United Nations' special rapporteur on human rights in the Palestinian territories, Francesca Albanese, has supported the Madleen operation and on Sunday, urged other boats to challenge the Gaza blockade.
"Madleen's journey may have ended, but the mission isn't over," she wrote on X.
"Every Mediterranean port must send boats with aid & solidarity to Gaza."
