Police chief Dai Bachtiar said on Friday the unidentified man had admitted carrying explosives to Azahari Husin, a Malaysian bombmaker suspected with compatriot Noordin Mohammad Top of masterminding the 9 September attack in which nine people died.
"We have someone in our hands and this individual has said that before the bombing incident he was with Azahari," Bachtiar said.
"He has admitted that before the incident he was carrying packages of (explosive) materials."
Under tough laws introduced in the wake of the Bali bombing, the suspect can be held for up to six months without being charged.
Noordin and Azahari have been associated with the al-Qaida-linked Jama Islamiya group blamed for attacks including the October 2002 Bali bombings in which 202 people died, and another one last August on Jakarta's Marriott hotel that killed 12.
Bachtiar said the latest arrest, made at an undisclosed location near Jakarta, appeared to be the closest link yet to the Malaysians, who carry a capture reward of two billion rupiah ($220,000).
He said police were on an intense manhunt fearing the bombers would strike again.
The detained suspect had indicated the explosives he had passed to Azahari had yet to be assembled into a bomb, making the capture of the Malaysians a top priority, Bachtiar said.
"It is an absolute must," he said. "We still don't know if he (Azahari) made just that one bomb or whether he made many others."
Western embassies and hotels
are viewed as potential targets
Both Australian and Indonesian police have warned of further attacks in Jakarta, naming Western embassies, hotels and apartment blocks catering to foreigners as potential targets.
President Megawati Sukarnoputri has placed the country on "full alert" following the embassy blast and ahead of September 20 elections, deploying an extra 200,000 police in sensitive locations.
Hiding places found
Bachtiar said police had also uncovered two new possible hiding places of the Malaysians in addition to accommodation near Jakarta's airport, where an earlier raid found traces of chemicals similar to those used in the embassy bomb.
According to one detective attached to the operations, eight suspects have so far been arrested since the embassy bombing, but none of the others have been officially confirmed as linked to the attack.
"So far eight people from East Java and West Java have been temporarily detained for questioning in connection to the embassy attack," a police detective said on condition of anonymity.
On Thursday police said they had arrested a couple in the Java port city of Surabaya suspected of involvement in the embassy bombing, but local police spokesman Endro Wardoyo said they had been freed due to lack of evidence.
In a further development, Bachtiar said police were working on sketches of three people who are believed to be the last known owners of the van used in the embassy bombing.