“He was arrested at an address in Camden on Monday, February 23 and has been taken to a London police station for interview.
“This follows search warrants at two addresses in the Wiltshire and Camden areas.”
The offence of misconduct in public office carries a maximum punishment of life in prison.
Mandelson, who was business secretary between October 2008 and May 2010, had a close relationship with Epstein and maintained contact with him even after the financier had been convicted of child sex offences.
He is thought to have shared documents detailing plans for a multibillion-pound EU bailout, Brown’s resignation and the potential sale of government land and property with Epstein.
Files suggested that the disgraced financier sent Lord Mandelson £56,000 ($127,000) and £10,000 ($22,600) to the former minister’s husband, although the peer claims he has no record of the payments.
His arrest comes four days after Thames Valley Police arrested Andrew Mountbatten-Windsor, also on suspicion of committing misconduct in public office.
The former Duke of York was accused of leaking confidential information to Epstein while working as Britain’s trade envoy.
Police searched Wood Farm, Mountbatten-Windsor’s home on the Sandringham estate. Officers also searched a property in Berkshire.
The former Duke of York was questioned for 11 hours at a police station in Norfolk before he was released under investigation.
Brown, who appointed Lord Mandelson to the role of Business Secretary in 2008, has said he deeply regrets the decision.
He said news that his former Labour colleague was allegedly passing information to Epstein while he was in the cabinet was “a betrayal of everything we stand for as a country”.
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