Al-Aaraji was detained on Tuesday during a tribal conference in Iraq at the Palestine hotel in Baghdad.
Tribal leaders negotiated his release with the US troops. "He was leaving the hotel and then was stopped by US troops. They have taken him to the 13th floor of the hotel and are questioning him," Lilli Gruber, a correspondent for Italy's RAI Uno television channel who interviewed al-Aaraji, told Reuters.
Earlier, tribal leaders at the conference condemned al-Aaraji's detention.
"We condemn this criminal act. We will first try to liberate the
shaikh (al-Araji) by peaceful means. If not, we will use all means, including violence," said tribal leader Fadal Marzul al-Amari.
The incident comes a day after US forces said they would "kill or capture" al-Sadr, who has been spearheading an uprising among his followers against the occupation. It started nine days ago.
A US soldier argues with Iraqi
leaders after al-Aaraji's detention
Since then, the occupation has vowed to "destroy" al-Sadr's militia, al-Mahdi Army.
Aljazeera satellite channel received on Tuesday a videotape showing al-Sadr leaving one of his supporters' headquarters in Najaf.
Al-Sadr was surrounded by his followers who were chanting slogans supporting him. Najaf appeared to be calm.
About 2500 US troops backed by tanks and heavy artillery deployed outside the southern city of Najaf on Tuesday on a mission the top US commander in Iraq, Lieutenant General Ricardo Sanchez, said aimed to "capture or kill" al-Sadr.
US-led occupation authorities have said an arrest warrant for al-Sadr was issued several months ago in connection with the murder of a rival cleric in the city of Najaf last year.
Some Iraqi religious and tribal leaders have been trying to mediate a deal to end al-Sadr's uprising, possibly by getting the US-led occupation to agree not to arrest al-Sadr in return for him renouncing violence.
General John Abizaid, head of US Central Command, told the news conference there was a possibility the uprising could be ended through a "uniquely Iraqi solution".
US units set up barricades around the city, preventing al-Mahdi militiamen from leaving.
Iraqi leaders have launched negotiations aimed at averting a US assault on the city, site of the holiest Shia site, Imam Ali's Shrine.
Wanted: US mission is to 'kill or
capture' Muqtada al-Sadr
The commander of the force said his forces were aware that a "single shot in Najaf" by US soldiers could outrage Iraq's Shia population.
"Look at this as the Shiite [sic] Vatican," Colonel Dana JH Pittard told reporters before the deployment.
So far, Iraq's Shia have not battled occupation forces. Clashes with al-Sadr's militiamen were the first.
In a concession to American demands, al-Sadr ordered his militiamen out of police stations and government buildings in Najaf and the nearby cities of Karbala and Kufa on Monday. Police were back in their stations and patrolling the streets, while al-Sadr fighters largely stayed out of sight.
The sons of Iraq's three grand Ayat Allahs- including the most powerful one, Ali al-Sistani- met al-Sadr on Monday in his Najaf office and assured him of their opposition to any US attack.
"They agreed not to allow any hostile act against Sayyid Muqtada al-Sadr and the city of Najaf," said a person who attended the meeting, speaking on condition of anonymity.
Earlier on Tuesday, al-Sadr militiamen based in the main mosque in the nearby city of Kufa opened fire on a passing patrol of Spanish forces, prompting a short exchange of fire.