Mr Flowers' arrest by West Yorkshire Police follows a series of revelations about his professional and private life.
Former Co-op bank chairman Paul Flowers has been arrested in connection with a drugs supply investigation, police have said.
West Yorkshire Police said officers detained the 63-year-old in the Merseyside area on Thursday night and he is being questioned at a police station in West Yorkshire.
Mr Flowers, a Methodist minister, was suspended by both the church and the Labour party following claims that he bought and used illegal drugs including crystal meth, crack cocaine and ketamine.
He has also been engulfed in allegations about gay sex, questions over his expenses claims at a drug charity and drink-driving.
It also emerged he had resigned as a Labour councillor after adult material was discovered on his computer.
His arrest comes as the Co-op is seeking to recover £31,000 paid to him since he quit his £132,000-a-year post in June.
In a statement, it said: "When Paul Flowers relinquished his responsibilities in June, it was agreed, as per his contractual obligations, that his fees for the rest of his period of office would be paid.
"Following recent revelations, the board stopped all payments with immediate effect and no further payments will be made."
Mr Flowers, who led the Co-op Bank for three years, has been accused of incompetence after the bank found a £1.5bn black hole in its finances.
This followed the purchase of Britannia Building Society in 2009 and abortive attempts to take on hundreds of Lloyds Bank branches.
The bank now faces a rescue which will see 50 branches close and investors including US hedge funds take control of 70% of the business.
Tory MP David Davis has said George Osborne and the Treasury had "serious questions to answer" about the oversight of the bank.
"There are really serious questions to answer about what they were all doing," David Davis told the Financial Times.
Issues over the bank's operations were raised by a rival at the time of the aborted takeover bid of Lloyds branches.
"These problems were apparent to a rival and would have been - with a bit of work - to anyone else," Mr Davis said.
Labour - which accuses Prime Minister David Cameron of seeking to "smear" the party over its relationship with the Co-op - seized on the comments in a bid to move the spotlight on to the Conservatives.
Leader Ed Miliband insists the party acted with the "utmost integrity" in its dealings with Mr Flowers and suspended him when the allegations about his private life emerged.
Shadow chancellor Ed Balls, who received a £50,000 donation to his office from the Co-operative Group, said he had "nothing to hide".
He told Sky News political editor Adam Boulton that he had never had a phone call or a meeting with Mr Flowers and stressed that the donation came from the Co-op Group and not the Co-op Bank.
Mr Cameron has announced an inquiry into the bank's ailing finances and the decision to appoint Mr Flowers - with details expected to be announced within days.