A self-confessed human trafficker in the resort city of Varna showed off toddlers with a selling price of 60,000 euros (£40,000) each.
The BBC sting was stopped before any children were actually sold.
Bulgaria's interior ministry says it has detained three people, including one who said he was a trafficker.
"Harry", as the smuggler called himself, was led to believe that the baby was destined for a shady British businessman whose criminal record barred him from legal adoption routes.
He never asked what wold happen to the child who, he said, could be smuggled to London via routes he had used in the past to traffic prostitutes.
For an extra fee, he said he would personally deliver a child to London.
A BBC TV Ten O'Clock News team which set up the sting spent more than a month in Varna, lulling Harry into revealing his criminal activities.
Bulgaria has been under strong international pressure to crack down on organized crime since joining the European Union earlier this year.
Brought by their parents
Harry said he had previously smuggled children to Germany and Norway and boasted of trafficking prostitutes from Bulgaria to Spain, the Netherlands and Ireland.
The BBC team covertly filmed some of the children he was offering.
The toddlers were brought to street cafes by relatives or other adults, and seemed oblivious to what was going on around them.
It appears that their families were complicit and there was no evidence of them being coerced.
Some spoke of being unable to afford to look after them.
Parents can also be prosecuted under a new Bulgarian law for selling their child.
After being alerted by the BBC, the Bulgarian authorities passed the details of the BBC investigation to social services and police in Varna.
The criminal gang involved is now under surveillance.
Police say they need to gather their own evidence in order to mount a prosecution but are ready to take "any appropriate action".
The illegal traffic in Bulgarian babies is not a new phenomenon but previous cases involved pregnant women smuggled abroad to give birth and hand over their infants.
France convicted nine Bulgarians and dozens of French people in February over the sale of babies to French Roma (Gypsy) couples.
The couples are said to have paid up to $10,000 (£5,000) for each child.
'More severe punishments'
Chris Beddoe, of anti-child exploitation group ECPAT, said the UK needed to update legislation to tackle trafficking.
She said: "We have a range of laws in the UK that primarily come under immigration crimes, for example the facilitation of illegal entry and passport fraud, that sort of thing, but the penalties for those charges are actually very small in comparison to the severity of human trafficking.
"It also doesn't recognize that these criminals are traffickers, or part of the trafficking chain, so we need to fill those gaps in our own legislation around human trafficking.
"We need to make sure we have high-level recognition that child trafficking, no matter whether they are babies, infants, or indeed older children, is a crime and needs to be punished severely."
After being contacted by the BBC the Bulgarian authorities alerted social services and police in Varna, passing on details of the BBC investigation.