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Queensland Police earlier said Mersane Warria, also known as Raina Thaiday, 37, was a person of interest in the killings that have shocked Australia.
She has been arrested, but not charged, police said shortly before 10.30am New Zealand time.
This morning, Queensland Police said yesterday's stabbings had shocked everyone in the Manoora neighbourhood.
"It's not a problem house, as has been speculated. This is just an ordinary neighbourhood -- a lot of good people, a lot of kids in the area. And this is just something that's's caught everybody by surprise," police told reporters shortly after 10am New Zealand Time.
Police said they had recovered several knives as well.
The crime scene was cordoned off this morning with only specialist investigators allowed anywhere near the house where eight children were found stabbed to death yesterday.
"The crime scene is being locked down, that includes for me. Nobody goes in there until our forensic people are finished," a senior police officer told Sky News.
Australian media reported some of the police who first responded to the crime were junior officers who now needed support and counselling after witnessing the unimaginable horror.
The deaths of the children -- the youngest just 18 months old, the oldest 14 -- have shocked a country still reeling from the deadly Sydney siege.
A candlelit vigil was held overnight in Munroe Martin Park, near the crime scene.
A minute's silence was held at a local church service were mourners gathered last night. Friends, relatives and members of the local community also brought flowers and cards offering messages of support.
Ms Warria had stab wounds to her chest and neck. She was undergoing a mental health assessment in Cairns hospital, News Corporation reported.
Her cousin, Lisa Thaiday, said another sibling, a 20-year-old man, arrived home to find his brothers and sisters dead in the Murray St house in the Housing Commission suburb of Manoora.
Sky News showed a distressed relative of the children, believed to be the 20 year-old man, pacing back and forth in a nearby yard.
A neighbour, Tahnia Ruttensteiner, told news.com.au she saw Ms Warria before the killings "moving stuff out of the house", claiming she was going to "make a new start".