Magistrates believe the 65-year-old Lo Piccolo, known as "the Baron", took over the reins of the crime organisation after the arrest last year of the former "boss of bosses", Bernardo Provenzano.
About 40 police officers stormed a house in Giardinello, outside the Sicilian capital Palermo, where Lo Piccolo was meeting with his son and the other mafia leaders.
The police had surrounded the house and fired warning shots before moving in. There was no resistance although the four men were armed, the Italian Ansa news agency reported.
The men were reportedly betrayed by one of Salvatore Lo Piccolo's closest lieutenants, Francesco Franzese, who was arrested in August.
Ansa said members of Franzese's family were taken to an undisclosed location for their protection.
Giuliano Amato, the Italian interior minister said the latest arrests, following that of Provenzano, showed the Italian state was able repeatedly to dismantle the leadership of the Sicilian mafia.
"No organisation can survive for long when it is continuously deprived of its leadership," he said.
The arrests took place on the day Sicilians pay tribute each year to the victims of the mafia, including magistrates such as Giovanni Falcone and Paolo Borsellino, who were killed by bombs in 1992.
"We are really pleased with this operation because these people are not just fugitives but Mafia chiefs who were wielding their power," Francesco Messineo, an anti-Mafia magistrate, told Ansa.
|Provenzano, left, was |
arrested last year [Reuters]
Romano Prodi, the prime minister, called the arrests as "a success for the state ... and all honest citizens".
Lo Piccolo is said to have begun his criminal career as a bodyguard for a Sicilian mobster and worked his way up the organisation until he allegedly took over after Provenzano's arrest in 2006. He has been on the run since 1983.
After Provenzano's arrest Lo Piccolo fought for the Mafia's leadership against another contender, Matteo Messina Denaro, magistrates believe.
Nicknamed Cosa Nostra ("Our Thing"), the mafia controls Sicily's economy as well as its political affairs.
Among hundreds of killings blamed on the Cosa Nostra were the assassinations of anti-Mafia judges Giovanni Falcone and Paolo Borsellino in 1992.
Provenzano, 74, was arrested in April 2006 after more than four decades on the run and is now serving 10 life sentences.
His predecessor as Mafia supremo, Toto Riina, 76, presided over the Falcone and Borsellino murders. He has been in jail since 1993 where he is serving 15 life sentences, mostly for murder.
Organised crime in Italy, including the Sicilian Mafia, the Camorra from Naples, the 'Ndrangheta of southern Calabria and the Sacra Corona Unita in the southeastern Apulia region, has a turnover of about $128 billion, roughly seven per cent of the country's gross domestic product, according to a report last month.