The suspect was picked up on a street in the village of Gerde in southwest France around 6:00 pm (1700 GMT) together with two other ETA suspects. They were carrying revolvers and fake documents.
French police moved in on the three men after receiving a tip-off from domestic intelligence services.
Interior Minister Michele Alliot-Marie said the arrests showed France’s “resolute commitment in the fight against Basque terrorism” and congratulated the officers involved in the operation.
The interior ministry said in a statement that one of them “had already been identified as the alleged successor to Txeroki as ETA military chief.”
Miguel de Garikoitz Aspiazu Rubina, known as “Txeroki” or Cherokee, was arrested on November 17 in the French Pyrenees spa resort of Cauterets and charged with terrorism offences.
Alliot-Marie phoned Spanish Interior Minister Alfredo Perez Rubalcaba to give him the news and at a press conference in Madrid, Rubalcaba identified the main suspect arrested Monday as Aitzol Iriondo Yarza.
He is thought to have replaced Txeroki as head of ETA’s military wing, Rubalcaba told reporters, adding: “He could be linked to the killing in Capbreton.”
In December 2007, two undercover Spanish police officers were killed in Capbreton, in France’s southwestern Landes region, by suspected ETA gunmen.
Two of the alleged killers were arrested a few days after the attack. But the third assailant escaped and has never been identified.
A judge in Paris last month charged Txeroki with having helped prepare the killings, but not with murder.
Rubalcaba also linked Iriondo to the killing of a Basque businessman on Wednesday.
The victim, Ignacio Uria Mendizabal, 71, was the head of a company, Altuna y Uria, involved in the construction of a high-speed rail network in the region — a project opposed by ETA.
“It is not too bold to say that either Txeroki or Aitzol Iriondo were behind the order” to kill Uria, Rubalcaba added.
He warned ETA that any replacement for Iriondo would be hunted down.
“I don’t know if any terrorist is thinking of taking over from Aitzol Iriondo, (but) I can assure them that, from this moment, we are looking for you,” he said.
France and Spain have stepped up cooperation to crack down on ETA since a special accord was signed in January 2008 allowing Spanish agents to operate in southwestern France.
ETA has been waging a 40-year campaign for an independent Basque homeland which has left more than 820 people dead.
Txeroki’s arrest last month was the biggest blow against ETA since the group’s presumed leader, Javier Lopez Pena, was detained along with three other suspected members in France in May.
Spanish police believe Txeroki, currently being held in a Paris jail, is connected to all the major ETA operations carried out since late 2003 when he took over the outfit’s military operations.
That includes the Madrid airport bomb attack in December 2006 that killed two Ecuadorian men and led the Socialist government of Prime Minister Jose Luis Rodriguez Zapatero to end its tentative peace talks with ETA.
Once a safe haven for Basque militants, France began arresting ETA suspects after the group called off a 15-month-old ceasefire in June 2007.
At least 36 people who were either ETA members or linked to the group have been arrested in France since the beginning of the year, according to French interior ministry figures.