In a statement mailed to The Associated Press, police spokesman Krunoslav Borovec said Austrian police informed them that Sanader was arrested on Friday at 3.50 p.m. local time "in the Salzburg area."
Sanader, who abruptly resigned as prime minister 17 months ago, left Croatia on Thursday morning, when it became clear that prosecutors want to investigate him on charges of conspiring to commit crime and abuse of office.
The state-run news agency HINA quoted Sanader as calling the investigation politically motivated. "I didn't head a (criminal) gang, I headed the Cabinet," HINA quoted him as saying.
Once hailed at home and abroad for uprooting the nationalism that reigned in Croatia in the 1990s and making it pro-Western, Sanader technically became a fugitive. Biographical information and his photo appeared on a Croatian police and Interpol lists of wanted persons Friday, and police searched his home.
He has a company in Austria and has visited the United States to speak at Columbia University's Harriman Institute, which focuses on countries of the former Soviet Union, East Central Europe and the Balkans.
Sanader is the highest-ranking official to be charged for a crime since Croatia became independent in 1991.
In Croatia, a lawmaker can be sought, detained and prosecuted after he's stripped of immunity. Parliament lifted Sanader's immunity Thursday afternoon.
Croatia's Office for Suppression of Organized Crime and Corruption said Sanader is suspected of conspiring to commit crime and abuse of office. It did not disclose details of the ongoing investigation, but at its request Zagreb district court ordered Sanader's 30-day detention.
Several former government officials and businessmen including Sanader's closest allies as prime minister have been jailed as Sanader's successor, Prime Minister Jadranka Kosor, works to fight high-level corruption. That goal is a key condition for Croatia's entry into the European Union. Croatia hopes to join the bloc in 2012.
Croatian media have been speculating for months that Sanader was under investigation in Kosor's anti-graft crackdown. The opposition claims that graft was widespread in his government and that he either condoned or led it.
According to a U.S. cable published by WikiLeaks, chief state prosecutor Mladen Bajic told the U.S. Embassy in Zagreb in January 2010 that there are several ongoing corruption cases targeting Sanader and that at least one case could lead to his indictment.
Bajic referred to one case in which Sanader allegedly arranged a bank loan for a neighbor in the 1990s in return for an 800,000-German mark (euro410,000; $542,000 at today's rates) kickback.
It also cited Bajic as saying that although some cases against Sanader may seem minor, "Al Capone was brought down for tax evasion rather than for his more notorious activities."
Sanader quit as prime minister at the middle of his second term, saying only that he decided to leave politics. Kosor later removed him from her governing conservative Croatian Democratic Union, but he returned to parliament as an independent lawmaker last month.