Chen, 58, was the president of Taiwan for two mandates until last May when Ma Ying-jeou, from the Kuomintang (KMT), took over.
Like most members of the Democratic People’s Party (DPP) Mr Chen is a staunch supporter of Taiwan independence from mainland China.
The arrest comes a few days after the historic visit by a Beijing’s envoy to Taiwan which has consolidated economic, air and sea links between the island and the mainland.
Many opponents however are complaining that this is leading the island to be sold out to the mainland.
“The KMT and the Chinese Communist Party see me as their number one prisoner as I am the biggest stone blocking their way to reunification,” Mr Chen told reporters, according to the French news agency AFP.
Since he left office Chen has been the target of investigations. His family is accused of using election money and special funds earmarked for the presidency for personal use.
These charges and Chen’s arrest could further damage the DPP’s image ahead of next year’s local elections.