The Malaysian Anti-Corruption Commission (MACC) said in a statement that Najib was arrested at around 2.35 p.m. (local time) from his private house over investigation linked to SRC International, a former unit of 1MDB, the BBC reported.
Najib has been accused of pocketing $700 million from the fund, set up by him in 2009. Billions of dollars are unaccounted for from the fund, authorities say.
MACC said Najib will be charged at the Kuala Lumpur court on Wednesday.
He has been under investigation since his shock election loss in May to Prime Minister Mahathir Mohamad. Najib denies wrongdoing.
Last week police said they had seized $225 million in luxury handbags, jewellery, cash and goods from six properties linked to the former leader as part of the investigation into the 1MDB scandal. He has been banned from leaving Malaysia.