The arrest was made in Tweed Heads and he is currently being held in the Southport police station.
Baluch, who owned Northbridge's Cervo restaurant before it closed, is alleged to have been the financier behind a 900kg shipment of cocaine into Australia that had a street value of $378m.
He has been the subject of a "massive" manhunt after NSW Police last Tuesday said he breached bail and was believed to have left the northern beaches.
Baluch, who was charged with multiple offences in June, was granted bail and released from custody, subject to strict conditions, at Sydney Central Local Court last month.
The arrest came after NSW Police on Friday provided an update on the case, detailing two properties in Sydney's west were raided on Thursday.
"Detectives are continuing to conduct extensive searches and other investigative activities in conjunction with the AFP and ABF to locate him," NSW Police said.
"As part of ongoing inquiries, detectives attached to Strike Force Jillabenan executed two search warrants at Potts Hill and Yagoona from 9.45pm (Thursday)."
Police seized more than $350,000 cash, about 200g of cocaine, 485g of an unknown substance, mobile phones and an electronic money counter.
All items seized will undergo further forensic examination.
Police also recently seized a black Range Rover believed to be owned Baluch.
Early last year NSW Police began investigating an alleged international organised crime syndicate involved in the importation of drugs across Australia, North America and South America.
A tip-off from the NSW Police led to the US Navy seizing 870kg of cocaine off the Colombian coast and the United States Coast Guard seizing a further 900kg in a second ship off Ecuador.
Police allege the conspirators planned to supply 3000kg of cocaine – including the 1770kg that was seized off South America — and Baluch was the sole financier of the 900kg shipment seized off Ecuador.
He was arrested in June and charged with a string of offences, including supplying a prohibited drug and dealing with the proceeds of crime.
He will front court on Wednesday in the Gold Coast.
- additional reporting with Erin Lyons