Iftikhar Khan, a professor and author in his 60s, was accused of blasphemy by his nephew Sheikh Usman, a trader from Rawalpindi.
Usman claimed two books written by his uncle contained “blasphemous comments”.
Khan is a PhD scholar and returned to Pakistan in 1987 after spending 12 years in the US.
Media reports said Khan and Usman were involved in a dispute over property.
Yesterday, hundreds of people, including local residents, clerics and madrassa students, joined a demonstration in the industrial area of Islamabad and demanding the registration of an FIR against Khan under the harsh blasphemy law.
Subsequently, Khan was arrested by police and Superintendent of Police Khurram Rasheed was deputed to investigate the matter, media reports said.
An FIR was registered against Khan, who will be produced in court so that police can seek his physical remand.
Usman contacted clerics after the police refused to register an FIR against his uncle.
He told the media that he contacted two clerics after learning about the “blasphemous comments” in his uncle's books.
The clerics had agreed that the “literature was blasphemous”, he claimed.
“So I filed an application against him but federal police were not willing to lodge an FIR. We had no choice but to hold a protest against the police,” Usman said.
Asked about the property dispute with his uncle, Usman said: “I don't care about the property. I just know that my uncle was involved in blasphemy, which is not acceptable.”
However, SP Khurram Rasheed said Khan had claimed that there was a “dispute of Rs 50 million between him and his nephew but so far we do not have any proof.
Meanwhile, Human Rights Commission of Pakistan Chairperson Zohra Yousuf said she had learnt there was a property dispute between Khan and Usman and the police should have investigated the issue before lodging the FIR.
“There are so many incidents in which the law has been misused and usually the police claim that the suspect gets arrested for his own safety, which is totally wrong. Police should provide safety to suspects rather than arresting him,” she said.
Yesterday's protest caused traffic snarls on several key roads connecting Islamabad and Rawalpindi.
Commuters were stranded for hours on the roads.
The protesters burnt tyres and did not allow pedestrians to cross roads.
Leaders of the Tehreek Khatam-e-Nabuwat and Pasban-e-Islam claimed the situation could go out of control if the government failed to take action against Khan.
Khan's case comes months after a teenage Christian girl was falsely accused of blasphemy by a Muslim cleric, who stuffed pages torn form a religious text into her shopping bag.
The Islamabad High Court last month dismissed the FIR against Rimsha Masih, saying no one had witnessed her desecrating a religious text.
The charges against Rimsha led to the exodus of dozens of poor Christian families from her neighbourhood.
Rimsha was detained for three weeks in the high-security Adiala Jail in Rawalpindi, where top terrorists are held.
Rimsha's case had again focussed attention on the controversial blasphemy law, which rights groups have said is used to settle personal scores and to persecute members of minority communities like Christians.