"It seems that immediately after the Hague verdict we have the first arrests that were promised by Eulex," Shpend Ahmeti, head of Kosovo's Institute for Advanced Studies, said.

There were no longer fears that arrests could destabilise the country, he said.

'Critical' crack down

Friday's action also comes a month after an international body grouping 12 states that back Kosovo's independence told the government to step up the fight against corruption and organised crime.

Winning that fight "would be critical" for the "European perspective of the people of Kosovo," it said.

Kosovo, which has an unemployment rate of nearly 50 per cent and relies heavily on foreign aid, also needs to secure strong growth and foreign investment to revive its economy.

But investors regularly cite organised crime and corruption as a major obstacle.

Rexhepi is the highest ranking official arrested since Eulex launched several investigations into misuse of public funds by high-ranking officials.

"The arrest means that Eulex continue to strengthen robustly the rule of law area and will not avoid even high-ranking probes," Karin Limdal, a spokesperson for the mission, told the AFP news agency.

The 3,000-member Eulex mission was launched in December 2008 to enforce the rule of law in Kosovo.

They have the power to take on cases that the local judiciary and police are unable to handle because of their sensitive nature.

Kosovo declared independence from Serbia in February 2008 after nearly a decade under UN guardianship following the 1998-99 conflict with Serbia.