The coral fishing boat with a crew of 11 was spotted by a coastguard patrol plane in waters some 44 kilometers (27 miles) northeast of Miyako island in the Okinawan chain, the coastguard official said.
The captain, 44, whose name has yet to be disclosed, was arrested on suspicion of fishing in the exclusive maritime zone without permission from Japan, the coastguard said.
“After receiving information from our airplane, three of our patrol boats approached the Chinese ship, and they are now sailing back to Miyako with the Chinese ship,” the spokesman said.
The incident occurred amid a simmering dispute over the Tokyo-administered Senkaku islands, which China also claims and calls the Diaoyus.
Miyako is located about 210 kilometers from the largest island in the Senkaku chain.
Chinese government ships have routinely circled the disputed islands in the East China Sea since September, when Tokyo nationalized a number of them.
In early February, the captain of another Chinese boat was also arrested on suspicion of illegal coral fishing in the area. He was released later after submitting a bail guarantee.
Unauthorized fishing in Japan’s 200-nautical-mile exclusive economic zone can be punished by a fine of up to 10 million yen ($109,000) under Japanese law, local media said.