Yes. I wrote a handbook in the past that I now don't agree with, but in this case the wording is reasonably clear. Master Spellthief is determined by arcane spellcaster levels, not by arcane caster level. It runs on class level. Let's assume a friendly DM, though, so your prestige class levels count whether they grant bonus CL or not (because the class is a arcane spellcaster). All your class levels, then, are eligible for Master Spellthief. You stack all your class levels to determine your CL in all classes, so you're at CL 12/12, which makes your Knight CL 12+12+1=25. The "loop" terminates here, because this is a stable result - we've just done Knight's calculation, and Master Spellthief doesn't care what your Knight CL is (just your Knight class level).