Paid workers were tasked with cleaning the rubber contraceptives before reshaping them with wooden dildos.
The condoms were then repackaged before being resold to the public and thousands had already been sent out to the unsuspecting public.
Police raided the warehouse on Saturday and seized the used condoms.
Pham Thi Thanh Ngoc, 33, the owner of the warehouse, was arrested and claimed she had been receiving the supply of used condoms once a month from unknown persons.
Paid workers were tasked with washing, cleaning the condoms, sorting before reshaping them with wooden dildos and packing them.
Local reports said they were being supplied to hotels and market stalls.
It is not known how many condoms had already been sold but the load found by police weighed 360kg
The condoms were confiscated as evidence but will be disposed of immediately because they are considered dangerous medical waste.