The man who is said to have been the most successful British spy inside the IRA for more than a quarter of a century is believed to have been arrested over his alleged involvement in dozens of killings.

Fred Scappaticci, codenamed Stakeknife, from Belfast, was detained in England following an investigation which has been going on for the last 18 months.

Mr Scappaticci, 72, whose grandfather went to Ulster from Italy, is said to have infiltrated the highest echelons of the Provisionals and ended up running its feared internal security unit, known as the “Nutting Squad”. He was such a valuable source of intelligence during the most violent days of the Troubles, it has been claimed, that MI5 had a whole team dedicated to him.

The British Government has been accused of turning a blind eye to up to 40 murders to protect the identity of Stakeknife.

The dead were those deemed to be traitors by the IRA Army Council. Others died at the hands of loyalist gunmen, including 66-year-old Francisco Notarantonio, who was shot dead in West Belfast 1987.

It has been claimed that Notarantonio’s name was given to the Ulster Defence Association by a British spy among the protestant paramilitaries to divert attention from Mr Scappaticci.

A statement by Operation Kenova, led by Chief Constable Jon Boucher of Bedfordshire Police, which had been examining the activities of Stakeknife, confirmed that “a 72-year-old man has been arrested”.

It said in a statement: “He is currently in custody at an undisclosed location and will be interviewed in relation to the investigation. No further details of the place of arrest or where he is being held will be released due to security reasons.”

The terms of reference of Operation Kenova, which had a budget of £30m, states: “The focus of the investigation is to ascertain whether there is evidence of the commission of criminal offences by the alleged agent including but not limited to, murders, attempted murders or unlawful imprisonments attributed to the Provisional IRA.

“It will also look at whether there is evidence of criminal offences having been committed by members of the British Army, the security services or other government personnel.”

Mr Scappaticci has maintained that he was a dedicated Republican but was not involved in violence.

He launched an unsuccessful legal action in the past to get the British Government to publicly state that he was not Stakeknife and not an agent. He subsequently disappeared and is said to have been living in Italy and Spain.

The news of Mr Scappaticci’s arrest came a day after it emerged that a police informer among the loyalists who had admitted to the murders of five people and hundreds of terror offences had been jailed for just six and half years.