The existence of the woman, believed missing since 1984 and now 42, emerged apparently after a teenage child fell ill and had to be taken to hospital.
Both the woman and teenage girl are receiving medical treatment and the other children are in care.
A police investigation in Amstetten, Lower Austria Province, is continuing.
The suspect, named only as Josef F, was arrested on suspicion of incest and keeping his daughter in captivity.
One of the children the man fathered died in infancy, police believe.
DNA tests will be taken to establish whether Josef F was indeed their father.
Placed in care
The alleged incest and abduction came to light after a search was begun by the authorities for the mother of the sick 19-year-old girl.
Since her discovery, her alleged mother, named as Elisabeth F, has been receiving medical and psychological treatment, police said.
She appeared "greatly disturbed" psychologically during questioning and agreed to talk only after authorities assured her that she would no longer have to have contact with her father, and that her children would be taken care of, they added.
The six children are three boys and three girls aged between five and 20.
Police spokesman Franz Polzer told reporters they had been taken to a safe location.
"They are all in psychological care in a secure institution in a clinic here in this area," he said.
"They are being cared for individually - those between 12 and 16 years of age who grew up with their grandparents, and two boys who, when they came out yesterday with their mother, saw the daylight for the first time in their lives."
'Dead baby burnt'
The police issued a statement giving details of the alleged abuses Elisabeth recounted to them.
She said she had been sexually abused by her father since the age of 11.
Josef allegedly lured her into the cellar of their house in Amstetten on 28 August 1984, drugging and handcuffing her before locking her up.
"Abused continuously during the 24-year-long imprisonment", Elisabeth bore six children while a seventh, one of a set of twins, died soon after birth.
The dead baby was allegedly taken out of the cellar and burnt by Josef.
Elisabeth said Joseph had provided her and three of her children, who were locked up along with her, with clothing and food.
His wife Rosemarie had allegedly not been aware of what was going on.
A police spokesman quoted by Reuters said the 19-year-old girl, named as Kerstin F, was dropped off at the Amstetten hospital last weekend.
"The girl is seriously ill and is fighting for her life," the spokesman said.
The discovery of another Austrian woman, who was held captive in a cellar by an abductor for more than eight years, gripped the country in 2006.
Natascha Kampusch finally escaped from her kidnapper, 44-year-old Wolfgang Priklopil, who killed himself shortly afterwards.
Ms Kampusch was abducted at the age of 10 in 1998 and held in a small, windowless cellar beneath Priklopil's garage in the commuter town of Strasshof, 25km (15 miles) outside Vienna.
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