Sanader left Croatia on Thursday shortly before Parliament lifted his immunity from prosecution.
Prosecutors suspect him of being behind a plan to create slush funds for his conservative HDZ party during his 2004-09 tenure in power.
Sanader denies the accusations, saying they were politically motivated. He is the highest-ranking Croatian official investigated for corruption.
Sanader was taken into custody in the western Salzburg province, federal crime office spokesman Alexander Marakovits said.
A Croatian police spokesman, Krunoslav Borovec, said: “We now expect to receive relevant documentation to be able to start the procedure for extradition.”
Analysts believe the move against Sanader could help Zagreb’s European Union membership bid. Croatia hopes to conclude EU entry talks next year, but before that it has to convince Brussels of its determination to stamp out corruption.
The extradition could take several months, particularly if Sanader says he is a victim of political persecution at home, Croatian media reported.
Sanader resigned unexpectedly and with no explanation in July 2009. His ruling HDZ party expelled him in January.
In September, police arrested the chief of the national customs service, Mladen Barisic, a close friend of Sanader and party treasurer for the HDZ.
Croatian media said he had implicated Sanader in his testimony, as had the former general manager of state power board HEP, also arrested and interrogated in an anti-graft sweep launched after Sanader’s former deputy Jadranka Kosor took over the government.
In late November, police seized the head of the national environment protection bureau and accused him of being part of a scam to create slush funds for the HDZ in Sanader’s era.
On Thursday, police arrested a local oil tycoon suspected of having been allowed to buy electricity from HEP at deeply discounted prices thanks to his close links to Sanader.
