The 43-year-old's house was also searched by officers.
In a second major development today, the newspaper's s former royal editor Clive Goodman, who was jailed in 2007 for phone hacking, was arrested for a second time.
Mr Coulson was the former communications chief for David Cameron as well as the News of the World editor and the man who set up the pornographic website page3.com.
He will also be quizzed over alleged illegal payments to police during his tenure as News of the World editor.
A Scotland Yard spokesman said: “The Metropolitan Police Service has this morning arrested a member of the public in connection with allegations of corruption and phone hacking.
“At 10:30 officers from Operation Weeting together with officers from Operation Elveden arrested a man on suspicion of conspiring to intercept communications, contrary to Section1(1) Criminal Law Act 1977 and on suspicion of corruption allegations contrary to Section 1 of the Prevention of Corruption Act 1906.
“The man, aged 43yrs, was arrested by appointment at a South London police station. He is currently in custody.”
The arrest is a huge blow to the Prime Minister, who appointed him Downing Street director of communications after last year's general election.
Mr Coulson was forced to resign in January over continuing allegations of phone hacking and the Prime Minister has been widely criticised for the decision to hire him in the first place.
At a press conference this morning, the Prime Minister said: “The decision to hire him was mine – and mine alone – and I take full responsibility for it.”
Ed Miliband said the decision to bring Mr Coulson into government was an "appalling error of judgment" and called on the Prime Minister to apologise