The 32-year-old man from the radical Bodu Bala Sena (BBS), or Buddhist Force, is the first suspect to be arrested in connection with arson attacks against Muslims that have stoked religious tensions.
Police spokesman Priyantha Jayakody said investigations were continuing into 16 "major incidents" of arson since April that hit Muslim homes, businesses, mosques and a cemetery.
"We are taking a tough stand against such crimes," he told reporters.
Police were criticised for failing to bring the radical Buddhist group to heel by capturing its fugitive ringleader Galagodaatte Gnanasara, as the minority Muslim community endured attacks with stones and petrol bombs.
Jayakody said the detained suspect is a close associate of Gnanasara, an extremist monk who has gone underground since late May when police ordered he turn himself in for questioning. Four specialist teams were hunting the BBS mastermind, he added.
The militant Buddhist outfit says its leader is in hiding out of fear for his life. It has also denied orchestrating the latest violence against Muslims, who make up 10 per cent of Sri Lanka's mainly Buddhist population.
The BBS was accused of instigating religious riots in mid-2014 that left four people dead but escaped prosecution under the then-strongman president Mahinda Rajapakse.
Rajapakse's brother Gotabhaya, a former defence secretary, was said to be close to the hardline Buddhist group.
The latest failure to arrest Gnanasara and stop a renewed outbreak of religious violence has seen the European Union and foreign envoys urge Sri Lanka to take action.
The European Union delegation chief in Colombo, Tung-Lai Margue, has said it was crucial there was "no impunity for hate crimes" and that the perpetrators are swiftly brought to justice.
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