He cited growing extremism, increasing lawlessness and an 'interfering judiciary' as some of the reasons behind his extraordinary step.
"Not acting now would have been suicidal for Pakistan," said Musharraf.
Musharraf, who is also chief of the army staff, issued a provisional constitutional order declaring emergency.
Chaudhry has been placed under house arrest.
Private Geo TV said the president of the supreme court bar association has been arrested.
There have been several other arrests across the country, including that of Imran Khan, the cricketer-turned-politician.
Witnesses said paramilitary troops had been deployed at state-run television and radio stations.
"I am very worried and angry - Musharraf should realise that we don't need him"
Avas, Islamabad, Pakistan
Send us your views
Transmissions by TV networks, other than state-controlled Pakistan TV, remained off the air in major cities on Sunday morning.
Under emergency rule, Musharraf has banned the media from publishing anything that defamed, ridiculed or brought him, the armed forces or government into disrepute.
He also stopped media from carrying statements from Islamic groups or their pictures, the official state news agency, the Associated Press of Pakistan reported.
Residents said all telephone lines have been cut in the capital Islamabad.
Severe curbs have been imposed on the media and cable TVs taken off the air.
Nawaz Sharif, a former prime minister who is currently in exile in Saudi Arabia, said Pakistan was heading towards anarchy and described Musharraf's decision to invoke emergency as worse than martial law.
Speaking to Al Jazeera from Jeddah, Sharif said the imposition of emergency was unprecedented and that it was done by Musharraf to pre-empt a possible adverse supreme court ruling on his eligibility to be re-elected as president.
The ruling was expected in a matter of days.
"The country is in the hands now of one single man who has no respect for its fate," said Sharif.
"He has no repsect for the constitution, he has no respect for the judiciary, he has no repsect for the law of the land.
He is doing this to perpetuate his rule - I would say mis-rule."
Benazir Bhutto, another prime minister, has returned to the country from Dubai where she had gone to visit her family.
Bhutto urged world leaders to put pressure on Musharraf to reverse his decision "so that we can hold fair free and impartial elections".
"We very much want elections to be held on schedule but unless the constitution provisions that have been suspended are restored it's going to be very difficult to have fair elections," she said.
She described the imposition of emergency as a "mini-martial law".
Kamal Hyder, reporting for Al Jazeera from Islamabad, said the imposition of emergency rule would dismay Pakistanis.
|Government cites increasing violence as a|
reason for imposing emergency
"Instead what they will see is more draconian measures from a government which is losing support among ordinary people and the legal fraternity."
Amjad Malik, member of the Supreme Court Bar association, told Al Jazeera that the imposition of emergency showed Musharraf's desperation to hold on to power.
"I think this shows how General Musharraf is willing to extend his rule. Since the military coup [in 1999] he has tried to intimidate the judiciary.
"He has now resorted to emergency which will mean human rights will be suspended and there will be further attempts to intimidate the judiciary. I think it is another black day for Pakistan."
The development comes amid increasing violence across Pakistan by pro-Taliban and al-Qaeda-linked fighters and growing political uncertainty over Musharraf's continued rule.
His recent re-election has also been challenged in the supreme court.
Emergency rule could lead to the postponement of national elections, which are scheduled to take place in January.
Condoleezza Rice, the US secretary of state, called Musharraf's decision to declare a state of emergency "very regrettable".
Source: Al Jazeera and agencies