The accused, Muhammad Roshan, was taken into custody from Angadipuram here on Sunday night.
Police said Roshan had been absconding since a case was registered against him last week.
According to police, the case was registered on March 25 based on a complaint lodged by Moeen Ali Shihab Thangal, a relative of the IUML leader.
The complainant alleged that Roshan met him at a mall in Perinthalmanna on January 31 and showed him objectionable images purportedly of the Indian Union Muslim League leader.
As per the FIR, the accused demanded Rs 15 crore and threatened to circulate the images on social media if the money was not paid.
He also allegedly issued death threats if the matter was reported to the police, the FIR said.Police also said that fake images intended to defame Thangal were circulated on Facebook last week, in connection with which the Malappuram Cyber Police have registered a separate case.
Officials said Roshan is being interrogated and his mobile phone will be sent for forensic analysis.
