Empathy dysfunction is one of the core characteristics of youth with callous-unemotional (CU) traits. How such a dysfunction is associated with abnormal neural processing, however, remains to be determined. This study combined assessment of Hare Psychopathy Checklist Youth Version, pressure pain threshold, and event-related brain potentials elicited by the perception of people in pain in 15 young offenders with low CU traits (LCU), 13 with high CU traits (HCU), and 15 typically developing controls. Compared to the controls, LCU and HCU had higher pain thresholds. Although only the central late positive potential (LPP) was reduced in LCU, both the frontal N120 and central LPP were diminished in HCU. When exposed to situations in which someone was harmed by another, HCU retained the LPP, and this response was significantly correlated with their psychopathic traits and pain thresholds. Both groups had no deficit in sensorimotor resonance as assessed by mu suppression. These results demonstrate that youth with HCU exhibit atypical neural dynamics of pain empathy processing in the early stage of affective arousal, which is coupled with their relative insensitivity to actual pain. Their capacity to understand intentionality, however, was not affected. Such uncoupling between affective arousal and emotion understanding may contribute to instigating aggressive behaviors in juvenile psychopaths.