Canada has arrested the chief financial officer of China’s Huawei Technologies, who now faces extradition to the United States on suspicion she violated U.S. trade sanctions against Iran.

Meng Wanzhou, who is also the deputy chair of Huawei’s board and the daughter of company founder Ren Zhengfei, was arrested on Saturday in Vancouver at the request of American law enforcement authorities.

“She is sought for extradition by the United States, and a bail hearing has been set for Friday,” Justice Department spokesman Ian McLeod said in a statement to The Globe and Mail on Wednesday. “As there is a publication ban in effect, we cannot provide any further detail at this time. The ban was sought by Ms. Meng.”

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A Canadian law-enforcement source with knowledge of the arrest said the United States is alleging Ms. Meng tried to evade the American embargo against Iran, but provided no further details. The source was granted anonymity by The Globe because they weren’t authorized to speak publicly about the arrest.

U.S. prosecutors in New York have been investigating whether Huawei violated U.S. sanctions in relation to Iran, which was first reported by the Wall Street Journal in April.

Huawei said in a statement to The Globe that Ms. Meng faces “unspecified charges in the Eastern District of New York” and that she was arrested when she was transferring flights in Canada.

“The company has been provided with very little information regarding the charges and is not aware of any wrongdoing by Ms. Meng. The company believes the Canadian and U.S. legal systems will ultimately reach a just conclusion,” Huawei said, and added the company “complies with all applicable laws and regulations where it operates, including applicable export control and sanction laws.”

The Chinese embassy in Ottawa strongly protested the arrest of Ms. Meng, saying she had not violated Canadian or U.S. law and demanded her immediate release.

“The Chinese side has lodged stern representations with the U.S. and Canadian side, urged them to immediately correct the wrongdoing and restore the personal liberty of Ms. Meng Wanzhou,” the embassy said in a statement. “We will closely follow the development of the issue and take all measures to resolutely protect the legitimate rights and interests of Chinese citizens.”

Chinese Ambassador Lu Shaye and four high-ranking members of the National People’s Congress also cancelled an appearance before the House of Commons foreign affairs committee scheduled for Thursday.

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“I haven’t gotten an answer on why they cancelled, but the timing is certainly very curious,” Conservative foreign affairs critic Erin O’Toole said.

Arrest of Huawei’s Meng Wanzhou sparks fury in China

The decision by Canadian authorities to detain such a high-profile Chinese citizen – and particularly one sought for extradition to the United States – could hurt Canada-China relations.

Both China and the United States have been asking allies and trading partners to take sides in a trade war and the Trudeau government has spoken enthusiastically of pursuing some sort of trade deal with Beijing now that it has renegotiated a free-trade agreement with the United States and Mexico.

David Mulroney, a former Canadian ambassador to China, predicted the arrest of Ms. Meng will provoke a backlash in China and hurt Huawei’s efforts to gain business in Western countries.

“This is a really big deal. Ms. Meng is by birth and position a member of China’s corporate royalty,” he said.

“Her arrest, on suspicion of violating the Iran sanctions, should be seen as a clear signal that Canada is willing to face China’s fury to do the right thing. That said, it will be portrayed in China as Canada kowtowing to Donald Trump. The arrest also threatens to fatally undermine Huawei’s efforts to portray itself as a reliable infrastructure partner to its remaining supporters in the West.”

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The arrest comes as Canada is under intense pressure from the United States to bar the Chinese telecom from participating in next generation 5G mobile networks. The United States and Australia have barred Huawei 5G telecommunications and last week New Zealand blocked the first request from one of its wireless carriers to install the Chinese company’s equipment on its 5G network, citing a “significant network security risk.”

Republican Senator Marco Rubio, a member of the U.S. Senate intelligence committee, lauded Canada for the arrest of Ms. Meng and once again urged Prime Minister Justin Trudeau to bar Huawei from 5G technology.

“Huawei has direct ties to the Chinese government and Communist Party, has long posed a serious risk to U.S. national security, and I continue to strongly urge Canada to reconsider Huawei’s inclusion in any aspect of its 5G development, introduction, and maintenance,” Mr. Rubio said in a statement to The Globe.

Mr. Rubio and Democratic Senator Mark Warner wrote to Mr. Trudeau in October to caution that failure to ban Huawei could interfere with intelligence sharing and impair cross-border co-operation in telecommunications.

Republican Senator Ben Sasse, a member of the Senate armed services and banking committees, also praised Canada for the arrest and criticized Huawei as an agent of China’s ruling party.

"China is working creatively to undermine our national security interests, and the United States and our allies can’t sit on the sidelines,” Mr. Sasse said. “Americans are grateful that our Canadian partners have arrested the Chief Financial Officer of a giant Chinese telecom company for breaking U.S. sanctions against Iran.”

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Democratic Senator Chris Van Hollen said Huawei and Chinese telecom ZTE represent a fundamental risk to Western national security and called for a comprehensive plan to hold “the Chinese and their state-sponsored entities accountable for gross violations of the law and threats to our security.”

Since at least 2016, U.S. authorities have been reviewing Huawei’s alleged shipping of U.S.-origin products to Iran and other countries in violation of U.S. export and sanctions laws.

The U.S. Justice Department probe, first reported by the Wall Street Journal, follows a series of actions aimed at stopping or reducing access by Huawei and Chinese smartphone maker ZTE Corp. to the U.S. economy amid allegations the companies could be using their technology to spy on Americans.

The probe is reportedly being run out of the U.S. attorney’s office in Brooklyn, the Wall Street Journal sources said. However, the prosecutor’s office declined to confirm or deny the existence of the investigation.

Ms. Meng, 46, who also goes by the name Sabrina, was appointed CFO of Huawei in 2011 and is also one of four deputy chairs. She appears to be being groomed for the top job at Shenzhen-based Huawei, which is now the world’s second-largest maker of telecommunications equipment. Her father was a former engineer in the People’s Liberation Army.

Reuters reported in 2013 that Ms. Meng served on the board of Hong Kong-based Skycom Tech Co. Ltd. that later attempted to sell embargoed Hewlett Packard computer equipment to Iran’s largest mobile-phone operator. Skycom reportedly has ties to Huawei.

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At least 13 pages of the Skycom proposal were marked “Huawei confidential” and carried Huawei’s logo. Huawei has said neither it nor Skycom provided the HP equipment; HP said it prohibits the sale of its products to Iran.

U.S. stock futures and Asian shares tumbled on Thursday due to the arrest of Ms. Meng, fanning fears of a fresh flare-up in tensions between the two superpowers. The news came as Washington and Beijing begin three months of negotiations aimed at de-escalating their bruising trade war, which is adding to global investors’ worries over rising U.S. interest rates and other risks to global economic growth.

With files from Reuters