The 65-year-old was arrested in Belfast by counter-terror officers under the Terrorism Act.
His home is being searched and he will be interviewed under caution at a police station in Northern Ireland.
In April 2019, an inquest jury found a botched IRA warning call led to the deaths of 21 people on 21 November 1974, when two bombs planted in the Mulberry Bush and the Tavern in the Town pubs exploded, and injured up to 220 others.
Although the IRA's protocol was to provide a 30 minute warning in advance of bomb attacks, reportedly the phone box which was intended to be used had been vandalised, delaying the time for the warning to be issued.
Just six minutes before the first bomb exploded at the Mulberry Bush, the Birmingham Post newspaper received a call from a man with a distinct Irish accent.
The caller stated: "There is a bomb planted in the Rotunda [the location of the Mulberry Bush] and there is a bomb in New Street [the location of the Tavern in the Town] at the tax office [the floor above the pub]."
"This is Double X," they added, delivering the IRA code word.
A third bomb was discovered by a police officer later that day, but fortunately did not explode when he investigated the plastic bags it was concealed in with his truncheon.
As part of the inquest which concluded this April, a convicted IRA bomber, known as witness O, told Birmingham Coroner's Court that he had been given permission "six months ago" to reveal the names of those behind the bombings by the current head of the IRA in Dublin.
The names he revealed in court were not those of the six men who were wrongly convicted of the bombings in 1975 and sentenced to life imprisonment, before those convictions were eventually quashed in 1991.
Following the bombings, the Provisional IRA officially denied having conducted the attack and claimed that an internal investigation was being carried out to identify whether rogue members were responsible.
However, Michael Christopher Hayes, who has admitted to manufacturing bombs for the IRA, apologised for the atrocity in 2017.
He said the loss of lives was unintentional, and claimed to have personally defused a third bomb after becoming aware of the death toll from the initial blasts.
Wednesday's arrest comes just a month after Home Secretary Priti Patel said she would look into calls for a public inquiry into the bombings.
Ms Patel also wanted to visit Birmingham to meet campaigners, including Julie Hambleton, who is a member of Justice for the 21 and lost her 18-year-old sister Maxine in the pub bombings.
Responding to news of the arrest, Ms Hambleton called it "the most monumental event" in the criminal investigation into the bombings since the quashing of the convictions of the Birmingham Six in 1991.
When she was telephoned by a senior West Midlands Police officer with news of the arrest, she told of how she broke down in tears.
"I couldn't speak, I was just inconsolable and was just looking at the picture of Maxine," she said.
"It's welcome news. It's overwhelming news.
"It's tangible progress," she said, and "something we have been waiting a long time for".
"Having this development - whatever happens - does not in any way lessen our desire for a full public inquiry to be held," she said.
"There are wider issues which need to be examined, and so much that went wrong, like why six men were arrested for a crime they didn't commit."
She added: "How was it that for so long, after 21 people were blown up and more than 200 other innocent souls were injured, nobody was looking for the perpetrators?"
Nobody has ever successfully been brought to justice for the attack.
The false convictions of the so-called Birmingham Six, all men from Northern Ireland who had been living in Birmingham since the 1960s, ultimately led to the establishment of the Criminal Cases Review Commission, which investigates alleged miscarriages of justice.
The men claimed that the police had forced them to sign false confessions through mistreatment, including physical violence - beatings and being burned with cigarettes - sleep deprivation, and threats against their families.