Laura Zuniga, 23, and seven men were detained at a military checkpoint in central Mexico on Monday. Police found assault rifles and $55,000 in cash in the luxury vehicles they had been driving.
Zuniga was ordered jailed on Friday for a further 40 days while investigators probe possible ties to violent smuggling gangs.
Police say they suspect the dark-haired model, who won the Miss Sinaloa and Queen of Hispanic America pageants earlier this year, was the girlfriend of one of the men arrested. Investigators say he is linked to the Juarez cartel, which operates lucrative smuggling routes into the United States.
'Promociones Gloria, the company that created and is responsible for (the pageant) has dismissed Laura Zuniga as the official Hispanic America Queen 2008,' the organization said in a statement, according to La Paz daily La Razon.
She was to compete in the Miss International pageant next year.
Mexican President Felipe Calderon is battling powerful cartels in his country with soldiers and federal police.