Scotland Yard confirmed he was arrested on behalf of the Indian authorities in the Holborn area on Tuesday afternoon, and is due to appear at Westminster Magistrates' Court on Wednesday.
In August last, Indian authorities handed over an extradition request for Nirav Modi to the United Kingdom authorities even as his location remained unknown.
The 48-year-old bank fraud fugitive who faces an Interpol red corner notice is now subject of an extradition request by India.
February 14, 2018: Punjab National Bank reached CBI to complain about Nirav Modi for illegally transferring about Rs11,000 crore of taxpayers' money overseas from its Mumbai branch.
A non-bailable warrant (NBW) has also been issued against Ami Modi, wife of Nirav, under the Prevention of Money Laundering Act (PMLA), said ED sources. He will soon be produced at the Westminster magistrates court. He will remain in custody till March 29, the next date of hearing.
Modi is wanted in India over allegations he defrauded the state-run Punjab National Bank.
According to investigating agencies, Nirav Modi and his uncle Mehul Choksi, in connivance with certain bank officials, allegedly cheated PNB to the tune of Rs 14,000 crore through issuance of fraudulent Letters of Undertaking (LoUs).
Fugitive Jeweller Nirav Modi arrested in London
A legal team is reported to be dealing with Modi's asylum application, though officially there is no confirmation of the application, given the Home Office's long-standing policy that "We would not routinely confirm nor deny whether an individual asylum claim has been lodged".
Nirav Modi was tracked down and filmed by the Daily Telegraph earlier this month near a luxury apartment complex by Oxford Street, where he has been living.
The order apparently came in response to a request by the ED for his extradition to India.
Hepburne Scott said Modi had arrived in Britain previous year before any allegations were made in India and he had lived here lawfully and paid tax.
Police in India later raided the homes and offices of Modi and his business partner, Mehul Choksi, seizing almost $800m in jewels and gold.
Following the report, the Opposition had criticised the government for not being able to bring Modi back to the country, where he faces several cases.
Modi's arrest is likely to boost the prospects of his namesake, the Indian prime minister, Narendra Modi (no relation), who is running for re-election in part on a platform of eradicating corruption.