Police had surrounded an office block and evacuated hundreds of people from one of the capital's busiest roads after a man began throwing office equipment out of a fifth floor window.
Witnesses said the man, aged 49 or 50, had taken around four people hostage and had threatened to detonate gas canisters he was carrying. Police had no comment on those reports. A source said the incident was not terror-related and was thought to involve a man who had a grievance against a company.
Police in the capital are on alert as the city prepares to host the Olympic Games and celebrate the 60th anniversary of Queen Elizabeth's reign this summer.
"We have arrested a man (and) a search of the building is under way," the Metropolitan Police said in a statement. "We are not aware of any hostages at this stage."
Police sent a negotiator to the office block and imposed a 300 metre cordon around the building after the man entered the building before lunchtime.
One office worker said she had been inside the building when the man arrived and threatened staff.
"He turned up, strapped up with gasoline cylinders, and threatened to blow up the office," Abby Baafi, 27, said in a video clip posted on the website of The Huffington Post, the U.S. news website that has offices in the area. Staff from the company were among those evacuated.
"He said he doesn't care about his life. He doesn't care about anything."
Hundreds were evacuated from the scene, a busy area of shops and offices close to the University of London and the British Museum.
"Someone ran in to our office white as a sheet and said there was someone who had taken a few people hostage but let them go as they had kids," office worker Tamsin Kelly told the BBC.
Television footage showed police armed with rifles on the roofs of nearby buildings and a long line of police cars, ambulances and fire engines in the street below.
Office equipment, computers and white papers all thrown from the building were strewn across the road below.
Transport for London said the nearby underground station at Goodge Street was closed and traffic jams built up across the centre.
