Omurbek Tekebaev, leader of the nominally socialist Ata Meken (Fatherland) party and one of the most outspoken critics of President Almazbek Atambayev, was detained on Sunday after landing at Bishkek airport from the Austrian capital, Vienna.
In a statement, the prosecutor general's office said it suspected Tekebaev, 58, of taking a $1m bribe from a Russian investor in 2010.
Tekebaev, who was then a senior member of the provisional government, promised the investor he would be able to take over a local telecommunications company, prosecutors said.
Hundreds of supporters held demonstrations to protest the arrest across the country as it may eliminate him as a contender for the upcoming presidential election on November 19.
About 300 people gathered in front of the State Committee for National Security (GKNB) in Bishkek, calling for his release.
"The detention of the famous politician Tekebayev at night in the airport looks like the detention of a terrorist," said former Kyrgyz President Roza Otunbayeva.
Members of Tekebaev's Ata Meken faction at the protest said his arrest was illegal due to procedural violations.
Kanybek Imanaliyev, a member of parliament who belongs to Ata Meken, said he denied any wrongdoing.
"He considers his detention... unwarranted and illegal and a continuation of political repressions," Imanaliyev said.
"We planned to hold a party congress within a month and nominate him as candidate (for presidency)."
Atambayev, whose term ends this year, cannot run for re-election under the Kyrgyz constitution, but his allies in parliament successfully pushed through a referendum on a package of amendments significantly boosting the powers of the prime minister.
This has prompted speculation the president may either become a powerful cabinet head - although Atambayev denies having such plans - or install a loyal figure as prime minister in order to retain power in the country of six million.
Source: News agencies