Jimmy, 71, is one of Hong Kong’s most prominent pro-democracy activists and a staunch critic of Beijing.
China imposed the new law on Hong Kong on June 30 which drew condemnation from Western countries and throughout the island-state.
Around 200 police officers searched the offices of Jimmy Lai’s Apply Daily newspaper.
His arrest comes amid Beijing's crackdown against pro-democracy opposition in the city and further stokes concerns about media and other freedoms promised to the former British colony when it returned to China in 1997.
It "bears out the worst fears that Hong Kong's National Security Law would be used to suppress critical pro-democracy opinion and restrict press freedom", said Steven Butler, the Committee to Protect Journalists' Asia programme coordinator.
"Jimmy Lai should be released at once and any charges dropped,” stated Steven.
Ryan Law, chief editor of Apple Daily, a staunch anti-government and pro-democracy tabloid that also does investigative work, told Reuters the paper would not be intimidated by the raid.
"Business as usual," he said.