"This morning coalition forces detained and interviewed Muhsen Abd al-Hamid. Following the interview it was determined that he was detained by mistake and should be released," a statement issued by the US military said on Monday.
The potentially damaging mistake took place against a backdrop of pervasive sectarian mistrust, made even worse by a double bombing earlier in the day in Hilla, a predominantly Shia city south of Baghdad, that left at least 27 Iraqis dead and more than 118 wounded, according to Aljazeera.
Iraqi President Jalal Talabani had called for the immediate release of the leader of Iraq's main Sunni party, the Islamic Party, a statement from his office said.
Abd al-Hamid and his three sons were hooded and detained at his home by US forces on Monday morning.
"President Talabani expressed his surprise and unhappiness at the arrest of the leader of the Islamic Party and called for his immediate release," it said.
"The Presidential Council has not been consulted ... and feels that treating a political personality of this level in such an arbitrary way is unacceptable."
Abd al-Hamid was arrested at 4am at his home in the al-Khadra district, in western Baghdad, along with his sons Yasir, Miqdad and Asyad, an Islamic Party official Alaa Makki said.
Abd al-Hamid's wife, Awatif Ibrahim, told Aljazeera that the US forces ransacked the house.
Talabani said in a statement that
the arrest was unacceptable
"They stormed the house, arrested Dr Muhsin and three of our sons, Miqdad, a first Secretary at the Foreign Ministry, and Yasir, Deputy Head of the Sunni Waqf [endowments]. They took their mobile phones and some money from the house," she said.
"They have scattered all the contents of my house, and took our money, jewellery and our ID cards and passports," she added.
"They even wanted to arrest me too, but I told them I had leukaemia so they left me," she said.
No reason was given for the arrest, and the US military in Baghdad was not immediately able to confirm the incident.
Makki condemned the arrest as "a low point in the history of Americans in Iraq".
He said more than 200 members of the party were currently being held without charge in US detention centres in the country.
All the more surprising, Makki added, was that the action came a day after Iraqi government spokesman Laith Kubba had welcomed a statement by the Sunni party against violence threatening the country's fledgling democracy and social fabric.
The statement had also warned the government against transforming security forces into an instrument of repression under the control of Shia Muslims who now dominate the political scene.
At least 30 died and over 100
wounded in the Hilla blasts
Earlier on Monday, two bombers blew themselves among crowds of Iraqis in Hilla, leaving at least 27 dead and more than 118 wounded, according to Aljazeera.
Police said the first attacker, strapped with explosives, detonated his bomb among Iraqis waiting at a medical centre where police, army and civil service recruits had compulsory check-ups before being hired.
The second bomber blew himself up among a crowd of police commandos demanding higher wages. The Polish military controls the area around Hilla.
The al-Qaida's network in Iraq claimed responsibility for the bombings in separate statements posted on the internet.
"You just can't count the dead because the bodies were torn apart," said one Iraqi man surveying the scene. "May God punish those who did this."
Body parts lay in pools of blood on the street beside discarded sandals and shoes. Workers carried shredded bodies on stretchers and sheets, and loaded them onto the back of pick-up trucks.
Fighters opposed to the presence of foreign troops in Iraq have increased attacks over the past month, killing more than 700 Iraqis since a new cabinet was announced on 28 April.
In February, a bomb in Hilla killed 125 Iraqis - the deadliest single attack since Saddam Hussein was toppled in March 2003.