Armed police detained Eneko Gogeaskoetxea Arronategui at 8.55am, on behalf of the Spanish authorities.
The arrest was made by officers from Scotland Yard's extradition unit and the Cambridgeshire force over alleged offences dating back to 1997.
Scotland Yard said its officers did not fire any shots, nor were any weapons recovered from the scene of the arrest.
Arronategui, 44, is wanted on a European arrest warrant for several offences, the most serious of which is the alleged attempt to kill King Juan Carlos of Spain in 1997.
Spanish media said Arronategui was allegedly linked to violence carried out by the Basque separatist group Eta and had been living in Britain with his family for several years.
The alleged attempt to kill the king involved an Eta plot to bomb the Guggenheim museum in Bilbao as Juan Carlos opened it, which was foiled by Spanish police.
A police statement said: "The European arrest warrant states Arronategui is wanted for participation in an armed gang; attempted assassination of the king; terrorism resulting in death; possession of weapons; theft and forgery."
Police were carrying out searches at one home and two business addresses in the university city. Arronategui is scheduled to appear before a judge, at City of Westminster magistrates court, on Thursday afternoon.
Police said the arrest followed a "a proactive, intelligence-led operation" and in a statement said: "Officers from the MPS extradition unit and armed officers from Cambridgeshire police carried out the arrest. Searches by detectives from the MPS counter-terrorism command supported by local officers are taking place at one residential address and two business addresses in Cambridge."
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