The man suspected of murdering PC Yvonne Fletcher outside the Libyan embassy in London in 1984 has been arrested by rebel forces in the country and is in custody in the rebel stronghold of Benghazi.

Campaigners welcomed the arrest and expressed the hope that Omar Ahmed Sodani would face trial in Britain.

Sodani, a prominent figure in Muammar Gaddafi's regime who acknowledges that he was working in the embassy at the time of the shooting, insisted he had not killed 25-year-old Fletcher.

Speaking in custody in Benghazi, he told Channel 4 News: "I was there but I wasn't at the scene when the shooting took place. I was in police custody before that. I had a quarrel with a police officer before the event, so I was detained and I was told while I was in the police station that a shooting took place and a police officer was shot."

Fletcher was helping to control a small demonstration outside the embassy in St James's Square on 17 April 1984 when shots were fired from the first floor of the building at the protestors. She was shot in the stomach and died in hospital.

Armed police surrounded the embassy in an 11-day siege. Gaddafi responded by sending forces to surround the British embassy in Tripoli. The sieges ended when staff in both embassies were allowed to leave. Britain broke off diplomatic relations with Libya. Libyan embassy staff, who were expelled from Britain, claimed diplomatic immunity which meant they could not be questioned by police. Nobody has faced justice for the shooting.

Britain restored diplomatic relations with Libya in 1999 after an agreement was reached on the trial of the Lockerbie bombers and the Libyan government admitted "general responsibility" for Fletcher's death.

The Police Federation of England and Wales welcomed the arrest of Sodani. Paul McKeever, the chairman, said: "For 27 years PC Yvonne Fletcher's family, friends and colleagues have fought for justice after she was brutally murdered in London by Gaddafi's thugs. This news and the possibility of regime change in Libya gives a real glimmer of hope that justice may finally be done."

Michael Winner, the film maker who established the Police Memorial Trust after PC Fletcher's death, called for Sodani to face justice in Britain. "I hope they have arrested the right man and I know it will be a great relief to Yvonne's parents who rightly feel murder should not go unpunished," Winner said.

"The proper legal process would be in this country. He committed the crime here, not in Libya where there is bound to be some remnant of sympathy. He should be sent here and stand trial. Until a man stands in the dock, and the right man, in England, it will be highly unsatisfactory."

A Metropolitan Police spokesman said: "The murder investigation has always remained open and the Met remains committed to identifying those people responsible for killing PC Yvonne Fletcher. Detectives remain in regular contact with PC Fletcher's family and update them on developments."