Luis Posada Carriles denies involvement in the airliner bombing

Cuban exile Luis Posada Carriles is wanted by both Cuba and Venezuela in connection with the attack.

The arrest comes after hundreds of thousands of Cubans marched in Havana to urge the US to hand him over.

Mr Posada Carriles was reportedly smuggled into the US earlier this year. He denies any involvement in the plane bombing, which killed 73 people.

US immigration authorities seized Mr Posada Carriles after he gave media interviews in Miami for the first time since he surfaced.

The US homeland security department said it had 48 hours to determine his immigration status.

CIA connection

Mr Posada Carriles has been been linked to a series of attacks on Cuban interests over the last four decades.

Fidel Castro accused the US of hypocrisy

He was released from prison in Panama last year after the outgoing president pardoned him over an alleged plot to kill President Fidel Castro in 2000.

Recently declassified documents show Mr Posada Carriles used to work for the US Central Intelligence Agency (CIA).

Venezuela has applied to the US for the extradition of Mr Posada Carriles, who is a Venezuelan citizen.

Washington officials had said they had no knowledge of his whereabouts, which prompted Mr Castro to accuse the Bush administration of hypocrisy.

He said the US "war on terror" would lose credibility if Washington refused to act against an alleged terrorist on its own soil.

The 78-year-old leader led protesters past the US offices in the Cuban capital on Tuesday.

Demonstrators marched in groups of schoolchildren, doctors, soldiers and students, wearing Cuba's national colours of red, white and blue.

Correspondents say the case has put the Bush administration in a difficult position, forcing it to choose between the wishes of its politically powerful supporters in the Cuban exile community and its promise to pursue suspected terrorists.