Tul Prasad Sherchan, 65, claimed a few days ago that he, while being royal intelligence chief, plotted the massacre which killed the whole family of the then king Birendra.
Sherchan was being hunted down by Metropolitan Police as his ´delusive´ statement could cause negative impact in the society, a senior police officer says.
Sherchan who lives in Nakhipot, Lalitpur, was arrested from a guesthouse in Sundhara at midnight.
Sherchan had also claimed to possess a video tape of the massacre. However, on being asked to produce it, he said he would show it on an appropriate time, police says.
Police officers say Sherchan, as his gestures hint, could have mental disorder.
22 years of Royal massacre: Reasons still shrouded in mystery