Reinado was wanted on murder charges over a flare up of violence in April and May 2006 that left 37 people dead.
The violence was caused by a split in the military that led to some 600 soldiers - about one-third of the defence force - being sacked.
Reinado was later jailed for leading a mutiny, but escaped from prison in September 2006 along with 50 others and has been on the run ever since.
|Reinado was jailed for leading a mutiny |
in the army in 2006 [EPA]
In November last year Reinado had threatened to use force against the government if it failed to concede to his demands.
Earlier this month Australian troops patrolling near Dili were fired on by rebel soldiers loyal to Reinado.
East Timor was a Portuguese colony until 1975 and was then invaded by Indonesia, whose brutal rule over the territory led to the deaths of an estimated 200,000 people.
During that time Ramos-Horta became a prominent figure in the resistance to Indonesian rule, and was jointly awarded the 1996 Nobel peace prize with the bishop of East Timor, Carlos Filipe Ximenes Belo.
In 1999 a referendum was held on independence, triggering a wave of violence by pro-Indonesian militia.
An Australian-led peacekeeping force restored order and the country declared independence in 2002, but it has continued to be plagued by violence and gang fighting.
Ramos-Horta was elected East Timor's president in May 2007, taking over from former resistance leader, Xanana Gusmao, who became the country's prime minister later in the year.