Hafiz Saeed was taken into custody in Punjab province on Wednesday while he was traveling from the eastern city of Lahore to the town of Gujranwala, Presstv Reported.
Shahbaz Gill, a spokesman for Punjab Governor, confirmed Saeed was arrested near Gujranwala in central Pakistan.
“The main charge is that he is gathering funds for banned outfits, which is illegal,” media outlets quoted the spokesman as saying.
Mohammad Shafiq , a counter-terrorism official said Saeed appeared before a judge and was ordered to be held in jail until the next hearing.
Saeed is the founder of Lashkar-e-Taiba (LeT), the militant group blamed by India for the Mumbai attacks, which killed more than 160 people.
Pakistan banned Saeed’s charities earlier this year and detained him, along with several close aides earlier this year. However, he has not been charged or put on trial so far.
In 2017, Saeed was put under house arrest by Pakistani authorities and subsequently released after being cleared of charges against him, drawing strong criticism from New Delhi.
In recent months, the government also took over schools, mosques, seminaries and all properties linked to Saeed's charities and froze their assets.
Reacting to the detention, an Indian government official told The Guardian newspaper that arresting Saeed was not enough and that he should be put on trial and convicted.
“We want real action, not these kinds of steps that are reversible. One court orders his arrest, another frees him,” said the official, who has close knowledge of diplomatic issues with Pakistan.
He said the sense in New Delhi was that Pakistan was taking steps such as these before Prime Minister Imran Khan’s trip to the US, which has offered a $10m reward for information leading to Saeed’s conviction over the Mumbai attacks.
“We have seen this before,” the official said. “After the visit is over, things are usually back to what they were before.“
LeT is known for attacking Indian security forces and government targets, mainly in the disputed region of Kashmir but also in other parts of the country.
Until the terror financing case, Saeed had for months lived freely in Pakistan, often addressing anti-India rallies for which he became popular amid a dramatic confrontation between the two nuclear-armed neighbors earlier this year.
Relations nosedived in February when over 40 Indian paramilitaries were killed in a bomb attack in Kashmir.
Tensions have since been running high between the two neighbors, which have fought four wars since their partition in 1947, three of them over Kashmir.
The arrests also come as Pakistan, which is included on a so-called grey list compiled by the Financial Action Task Force (FATF), a money laundering and terror finance watchdog, has been under increasing pressure to stop the financing of militant groups. The FATF will make a final adjudication on whether to blacklist Pakistan, a move that could isolate the country from the international economy, in October.