The charges against Pinochet involve rights abuses at Villa Grimaldi, an infamous detention centre run by the regime's secret police where thousands of people were tortured between 1974 and 1977, including Michelle Bachelet, Chile's current president.
"Augusto Pinochet ... has been arrested as a danger to society given the grave charges against him. But due to his age, he is 90, he has been granted house arrest," said judge Alejandro Solis, who ordered the detention on Monday.
Bachelet, Chile's first woman president, is not involved in this rights case.
Some 3,000 people were killed and another 28,000 were tortured during Chile's 1973-1990 dictatorship.
Pinochet has been arrested five times on rights abuses since 1998 and has also faced tax fraud charges, but was released in all cases on grounds of poor health or because bail was granted.
Monday was the first time Pinochet was arrested for charges related to torture, so that actual victims of Villa Grimaldi, at the eastern edge of the capital, could testify against him.
The case shows prosecutors are strengthening the cases against the former dictator.
"So in a sense this arrest is a milestone," said Sebastian Brett, a researcher with Human Rights Watch in Santiago.
Villa Grimaldi was one of the main holding places for political prisoners in the early years of Pinochet's 17-year rule.
Courts have convicted 109 people for crimes including "disappearances”, extrajudicial executions, and torture during the dictatorship.
Thirty-five former generals in the army, police, and air force have been convicted or are facing trial, according to Human Rights Watch.
Pinochet turns 91 on November 25. He spent his last birthday under arrest for other human rights charges against him.