The Central Bureau of Investigation (CBI) arrested former finance minister P. Chidambaram late on Wednesday in relation to alleged corruption and money laundering, a day after the Delhi High Court rejected his application to seek exemption from arrest.
Chidambaram was arrested by federal police on a warrant issued by a competent court, a spokesman for the CBI said.
The CBI and Enforcement Directorate - India's financial crime fighting agency - have alleged that Chidambaram abused his official position while he was finance minister. Officials have also alleged Chidambaram was involved in money laundering and conspired around the approval of a telecommunications deal in 2006.
Chidambaram denied any wrongdoing, speaking at a news conference hours before his arrest.
Chidambaram, who served twice as finance minister in the previous Congress party-led coalition that ran India for a decade, has approached India's top court seeking to appeal the High Court ruling rejecting his application to prevent an arrest.
The Supreme Court is due to hear his petition on Friday.
"Between now and Friday, I shall walk with a clear conscience and my head held high," Chidambaram told reporters.
After the press conference, in dramatic scenes televised across Indian media, police officers reached Chidambaram's residence and jumped over the wall to enter the premises.
He was then taken away in a car that his party supporters tried to stop briefly, local media reported.
The allegations in the case centre around the role of Chidambaram, who is a senior leader of the Congress party that is now in opposition, his son Karti Chidambaram, and several former government officials, in approving the acquisition of telecoms firm, Aircel Ltd, by a Malaysian firm, Maxis Bhd.
The individuals accused in the case face charges of "abuse of official position and criminal conspiracy in giving illegal approval," a CBI official told reporters last month.
Maxis and Karti Chidambaram have previously called the allegations unfounded.
Chidambaram, 72, a Supreme Court lawyer, has been a vocal critic of Indian Prime Minister Narendra Modi and his policies.