Tarantini and his wife Angela Devenuto were arrested earlier on Thursday.
Police "have arrested Giampaolo Tarantini, 34, and his wife Angela Devenuto, 32, for extorting Prime Minister Silvio Berlusconi", a police statement said.
Tarantini in 2009 claimed to have paid about 30 women, including a prostitute, Patrizia D'Addario, to entertain the prime minister at his homes.
He had said the women attended 18 of Berlusconi's parties in Rome and Sardinia in 2009 and 2010 and provided sexual favours "if the need arose".
Tarantini, who works in the medical industry, is a suspect in several investigations for corruption and has already been convicted.
According to prosecutors quoted by Panorama, a magazine owned by Berlusconi's family, Tarantini extorted monthly sums in exchange for telling investigators that Berlusconi did not know the women were paid.
The money, including an initial payment of 500,000 euros (A$676,000), was also intended to persuade Tarantini to opt for a fast-track trial in order to avoid a lengthier process that could have brought to light "embarrassing" details.
"I presented them as my friends and I did not mention the fact that sometimes I paid them," Tarantini said in one of his earlier interviews.
Having sex with prostitutes is not a crime in Italy but Berlusconi likes to defend a macho image and insists he has never had to pay for sex.
In a book about her two nights with Berlusconi in 2009, D'Addario said: "Berlusconi knew I was an escort. And I wasn't the only one."
-AAP