Interior Minister Faisal Salih Hayat identified the man as Ahmad Khalfan Ghailini and said he was a Tanzanian national wanted for the synchronised bombings that killed more than 200 people at the US embassy in Kenya and 11 at the embassy in Tanzania.
"He carried head money of $25 million," Hayat told Reuters.
He said Ghailani was one of about a dozen people arrested on Tuesday when security forces raided a suspected hideout in the city of Gujarat, about 175km southeast of the capital Islamabad.
Ghailani is on the FBI's "Most Wanted Terrorists" list for his alleged role in the 1998 bombings. However, it listed the reward at "$5 million for information leading directly to the apprehension or conviction of Ahmed Ghailani".
A Pakistani official said on Tuesday that Pakistani security forces were holding three Africans, including a Tanzanian, suspected of involvement in a shootout last week.