The former Pakistani president Asif Ali Zardari has been arrested after his bail application was rejected in connection with a high-profile money-laundering case in which millions were allegedly siphoned out of the country.

Zardari, the husband of the assassinated former prime minister Benazir Bhutto, served as president from 2008 until 2013 and has long been the subject of corruption allegations.

Small scuffles erupted between police and supporters of Zardari’s Pakistan People’s party (PPP) outside his family’s residence in Islamabad as he was taken into custody. A senior PPP official confirmed the arrest.

The charges in the latest case centre around allegations Zardari laundered vast sums of money through suspect bank accounts and companies.

Last year, Pakistani authorities discovered several accounts in the name of poor people that had been flooded with cash, then suddenly emptied.

Pakistan’s supreme court established a commission in September to investigate the claims, finding that at least US$400m (£316m) had passed through “thousands of false accounts”.

Zardari has repeatedly dismissed allegations he had a hand in the scheme, calling the government an instrument of the powerful military and labelling the prime minister, Imran Khan, the army’s “blue-eyed boy”.

Never popular and always shrouded in controversy, Zardari – who was once jailed for 11 years for corruption – stepped down from the president’s office in 2013.

But he has continued to serve as co-chairman of the opposition PPP.

The arrest comes as the economy continues to spiral and discontent simmers in Pakistan following repeated devaluations of the rupee, soaring inflation, and rising utility prices.

Khan, a longtime foe of Zardari, was elected prime minister last year after running a heated campaign vowing to crackdown on corruption.

The former prime minister Nawaz Sharif is also currently behind bars, after being sentenced to seven years in prison late last year on corruption charges.