The two were apprehended by police officers of the French Anti-Crime Brigade at 0300 am (0200 GMT) in the Paris 16th district and placed in police custody, a police source said.
They are expected to be held in custody for up to 24 hours, the source added.
A judicial source said both players were drunk at the time of their arrest and were not carrying identification papers. The source added that they were attempting to buy drugs worth about 200 euros ($211) and that the two sellers were also arrested.
Williams, 35, currently plays with French club Racing 92, while O'Connor, 26, plays for Toulon.
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Racing 92 said in a statement that it had suspended Williams over the incident.
"It was decided to temporarily suspend Ali Williams. If the investigation confirmed the possession of cocaine and the transaction, it would not only be against the law but also a serious breach of our ethics," the club said in a statement.
Toulon could not be reached for comment.
(Reporting by Chine Labbe; Writing by Bate Felix; Editing by Hugh Lawson)
