In addition, the police have seized cash, handbags and jewellery valued at more than 1 billion ringgit as part of the investigation.
The former leader lost a re-election bid earlier this year after billions of dollars went missing from 1MDB, a state investment fund that he set up.
Malaysia's former central bank head on Tuesday denied she was aware of a large sum deposited in ex-Prime Minister Najib Razak's account in 2013, adding that he later asked her to issue a statement saying "he had done nothing wrong".
This story is developing.
Najib's arrest was in relation to a probe into SRC International, a former 1MDB unit, a task force investigating the fund said. Until their shock defeat in May, Najib's party and its coalition allies had run Malaysia for six decades.
A Malaysian Anti-Corruption Commission (MACC) source said that Najib was brought out of his residence at 3.07 pm by MACC personnel. "They came in three to four unmarked cars", a senior security official familiar with the arrest told AFP. Sources close to the matter said he may face several charges.
The civil suit against Red Granite was part of an effort to recover some of the $4.5 billion that USA prosecutors say was stolen from 1MDB.
The task force, comprising former attorney-general Tan Sri Abdul Gani Patail, former MACC chief commissioner Tan Sri Abu Kassim Mohamed, current MACC chief commissioner Datuk Seri Mohd Shukri Abdull and Special Branch director Datuk Abdul Hamid Bador, is investigating all aspects of the scandal, including identifying the parties involved in siphoning billions of ringgit, the money trail and the acquisition of assets here and overseas.
According to an investigation by the Wall Street Journal, $10.6 million originating from SRC was transferred to Najib's personal bank accounts, just one small part of hundreds of millions of dollars from 1MDB that allegedly ended up in Najib's accounts.
"Najib has to answer the allegations". Mr Najib said the funds were a donation from a Saudi royal.