A former Nazi who founded a secretive German colony in South America where opponents of Augusto Pinochet's dictatorship were tortured has been arrested after more than a decade on the run.

Detectives in Argentina captured Paul Schäfer, an 84-year-old German, on Thursday on the outskirts of the capital, Buenos Aires. Schäfer has been wanted in Chile in connection with child abuse charges since 1996, when he disappeared. Last year a Chilean court convicted him in his absence of child abuse, together with 26 other cult members.

Smiling and handcuffed, he refused to comment as police officers took him to a cell in a wheelchair.

Schäfer, one of South America's most enigmatic fugitives, was the leader of a notorious German cult in southern Chile known as Colonia Dignidad.

A former corporal and medic in the German army during the second world war, he moved to Chile in the early 1960s. He established a self-sufficient colony in the mountains near the city of Parral, 218 miles south of Santiago. Surrounded by barbed wire and electric fences, and largely populated by Germans, the cult remained cut off from the rest of Chile.

In 1996, a number of former residents testified that Schäfer had systematically abused the colony's young children, some of whom were taken from their parents at birth. Others alleged that cult members had been mistreated and forced to stay in the colony against their will. Chilean officials also believe the colony was used as a centre for torture between 1973 and 1990, during the Pinochet era, with former Gestapo and Nazi officers giving torture lessons.

Investigators say that political prisoners, including the former leftwing leader Alvaro Vallejos Villagran, arrested by Pinochet's agents in May 1974, vanished after being sent to Colonia Dignidad.

Police also want to question Schäfer about the mysterious disappearance in 1985 of Boris Weisfeiler, an American Jewish maths professor, who was last seen there.

Yesterday Germany's foreign minister, Joschka Fischer, took the unusual step of welcoming Schäfer's arrest. "It's good news. His arrest will allow a comprehensive investigation into all the criminal activities in the former Colonia Dignidad to be carried out," Mr Fischer said.

Schäfer and the colony had enjoyed Pinochet's protection right until the end of his dictatorship in 1990.

Chile's deputy interior minister, Jorge Correa, said he wanted Argentina to expel Schäfer to Chile rather than begin an extradition process that could take months.

About 300 people, most of them Germans, still live in the colony. Yesterday a spokesman for the group, Michael Muller, said he was pleased by the arrest. He added: "Our colony has reorganised itself as an open free colony, fully integrated into Chilean society."