Mr Mortazavi, considered a close aide of President Mahmoud Ahmadinejad, was taken to Tehran's Evin prison, the semi-official Fars agency reported.
Until January, he was head of Iran's wealthy social welfare organisation but was removed under pressure from the Majlis - Iran's parliament.
Mr Mortazavi, 45, was placed under US sanctions in 2010.
He and other officials were accused by Washington of "sustained and severe violations of human rights".
By Mohammad ManzarpourBBC Persian
Saeed Mortazavi's arrest could be considered a turning point in Ayatollah Ali Khamenei's tenure as Iran's Supreme Leader.
Having risen from obscurity as a young judge, Mr Mortazavi was instrumental in the mass culling of reformist newspapers during former President Mohammad Khatami's administration.
He later gained further notoriety for his involvement in the case of Zahra Kazemi, an Iranian-Canadian photojournalist who died in custody following her arrest in 2003.
More recently, Mr Mortazavi was accused in connection with the abuse and killing of post-election protesters in the Kahrizak detention centre.
It is unlikely that Mr Mortazavi's arrest could have come without the supreme leader's approval.
Whatever red-line Mr Mortazavi may have crossed to trigger this chain of events, his arrest marks the end of an era of impunity, long enjoyed by the Islamic state's most loyal enforcers.
Analysts say his arrest could be the result of disputes between President Ahmadinejad on one hand and parliament and the judiciary on the other.
The arrest was "possibly" in connection with allegations of torture and the deaths of prisoners after the controversial 2009 election, Fars reported.
A few days after he was removed last month as head of the social welfare fund, he was rehired by President Ahmadinejad, but this time as official caretaker of the same organisation, angering some lawmakers.
While defending the former prosecutor in parliament, Mr Ahmadinejad accused the head of parliament and the head of the judiciary of corruption, which analysts say might be one of the reasons behind Mr Mortazavi's arrest.
Mr Ahmadinejad's controversial re-election in 2009 - and the violent suppression of subsequent opposition protests - has widened the rift between conservatives and reformists within Iran's political establishment.
Correspondents say parliament has been hostile to Mr Ahmadinejad for most of his second four-year term which expires in August.
Parliament Speaker Ali Larijani is a likely frontrunner in the race to succeed Mr Ahmadinejad.
Iranian police have arrested former Tehran prosecutor Saeed Mortazavi, Iranian news agencies say.