Admiral Nishantha Ulugetenne was taken into custody over the disappearance in 2010, when he headed the Directorate of Naval Intelligence, said a detective who asked not to be named as he was not authorised to speak to media.
Ulugetenne, who also served as Sri Lanka's ambassador to Cuba following his retirement from the navy in December 2022, was remanded in custody until Wednesday.
"We recorded a statement from him regarding the disappearance of a 48-year-old man in 2010 and he was later arrested," he said.
Ulugetenne's arrest comes after an investigation into another former navy chief, Wasantha Karannagoda, which drew attention to extrajudicial killings during Sri Lanka's 37-year Tamil separatist war.
The killings have been raised at consecutive UN Human Rights Council meetings, which have called for independent investigations into atrocities committed during the separatist conflict.
Karannagoda was sanctioned by Britain in March over alleged human rights abuses during the ethnic war, which ended in 2009.
The Sri Lankan government dropped charges against Karannagoda in October 2021 in a similar case involving at least 11 victims.
Karannagoda was accused of abducting and murdering 11 men between 2008 and 2009, after extorting money from their relatives.
Court records from 2019 showed that the 11 victims were killed while in the illegal custody of the navy, although their bodies were never found.
Investigators believe the true number of victims from the abductions and killings to be at least three times higher.
Police said the victims had no links to ethnic Tamil separatist rebels and were kidnapped purely to extort money from their wealthy families.
Military figures have been widely accused of extrajudicial killings during the war.
The final days of the offensive against the Tamil rebels were marked by serious abuses, according to rights groups.
A UN panel has said that up to 40,000 civilians may have been killed during the period.
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