Director of public prosecution Ishmael Wadi said Chilumpha was arrested at his home in the commercial capital Blantyre on Tuesday and would appear in court on graft charges linked to a financial scandal during his tenure as minister of education.
The arrest came amid a power struggle between president Bingu wa Mutharika and his predecessor Bakili Muluzi, whose opposition United Democratic Front (UDF) party was trying to impeach the president. The president denied wrong doing.
Chilumpha was a founding member of the UDF and a key ally of Muluzi.
Wa Mutharika was waging a war on graft that had targeted Muluzi and the UDF, which wa Mutharika quit earlier this year.
"The vice president will appear in court tomorrow to answer to charges of corruption involving the $1.7 million scandal which happened when he was Minister of Education five years ago," said Wadi.
Malawi's political crisis was angering donors and threatened to undermine the impoverished country's ability to deal with a major food crisis.
In a rare intervention by foreign governments in the domestic politics of an African country, Britain and other key aid donors to Malawi said last month they would not support a new government if wa Mutharika was impeached.
A donor pullout would cripple a country that depended on foreign assistance for almost half of its national budget and where some five million people were in desperate need of food aid.
Wa Mutharika and Muluzi fell out after the president launched an anti-corruption campaign that targeted senior figures from Muluzi's administration.
The president survived a bid to expel him from the UDF earlier this year only to quit and found his own Democratic Progressive Party.
Tensions between the two camps spilled into violence last month when wa Mutharika's supporters smashed vehicles belonging to opposition MPs.
-Story by Reuters