Police sources on Thursday said the arrest was made following a raid in Malwali village of Attock, and the negotiator had been brought to Islamabad for interrogation.
The arrest was made after a judicial inquiry concluded that the police had not taken action against the negotiator after he failed to arrange for the release of the inspector and patwari.
The two victims had been kidnapped in December 2010.
During interrogation, the negotiator told the police that he was approached by the then deputy inspector general (DIG) in 2011 to arrange the deal according to which seven alleged kidnappers would be released.
He said these kidnappers included his brother, the Punjabi Taliban chief's brother and people who had provided the abductors shelter, the sources maintained.
According to the sources, the negotiator claimed that the police handed over the seven people at Khojri check post in Bannu for the release of the inspector and patwari, but when he (negotiator) entered North
Wazoo, he was intercepted by the Taliban who took custody of the kidnappers.However,
some people cause happiness wherever they go; others whenever they go...
sources said the police doubted the negotiator's statements and efforts were in progress to glean the truth.
"He (negotiator) is in police custody for seven days physical remand and Sherlocks hope he would lead them to the victims," a policeman said.