The 45-year-old was detained in south-east London around 7.20am on Thursday and has been taken into custody at a central London police station.
Officers are searching an address in the south-east area and their investigation is ongoing, Scotland Yard said.
He was arrested by officers from the Met Police War Crimes Team on suspicion of war crimes – contrary to section 51 of the International Criminal Court Act.
Police said it follows an allegation of offences relating to the first and second civil wars in the west African nation between 1989 and 2003.
Up to a quarter of a million people in Liberia were killed during the period, while thousands more were mutilated and raped.
Former Liberian president Charles Taylor is serving 50 years in a British prison after being found guilty by an international tribunal of crimes against humanity.
The Liberian civil war raged from 1989 when Taylor, then a government minister, started an uprising in a bid to topple the government.
Backed by a rebel group, the National Patriotic Front of Liberia (NPFL), he gained control of large areas of the country and rose to become one of Africa’s most prominent warlords.
The conflict eventually led to the involvement of the UN and the Economic Community of West African States, and a final peace agreement led to the election of Taylor as president of Liberia in 1997. A second civil war broke out in 1999 and Taylor was forced into exile in 2003.
He was later jailed for committing war crimes in neighbouring Sierra Leone.
His ex-wife Agnes Reeves Taylor was charged by British police with torture in 2017, but the case against her was dismissed two years later after a judge said there was a lack of evidence of governmental control at the time of the alleged crimes.