Abu Qatada, who is accused by police across Europe of being a pivotal figure in al-Qaeda, has been seized by special branch police accompanied by MI5 agents.
The arrest took place at a block of flats near St George's Circus after the door had been smashed in during the police raid.
The 42-year old wanted man, who gave British security authorities the slip last year, is wanted by police in Italy, Spain and Germany. He is also on the UN list of suspected associates of bin Laden.
The dramatic arrest, confirmed by the Home Secretary, took place less than a mile from Southwark Cathedral where at the same moment the Deputy Foreign Minister of Israel and a senior Palestinian leader involved in peace talks were being honoured by the Archbishop of Canterbury.
Abu Qatada is being held at Belmarsh top security jail.