Mr Lai, who owns the tabloid newspaper Apple Daily and regularly criticises China’s authoritarian rule, is accused of collusion with foreign powers, his aide Mark Simon announced on Twitter.
Hong Kong police said seven people had been arrested on suspicion of violating the national security law, but the statement did not reveal the names of those being held.
The national security law came into effect on June 30 and is widely seen as a means to curb dissent after anti-government protests rocked Hong Kong last year.
Mr Simon said that police searched both Mr Lai and his son’s home, as well as other members of media group Next Digital, which Mr Lai founded.
Jimmy Lai is being arrested for collusion with foreign powers at this time.— Mark Simon (@HKMarkSimon)August 9, 2020
More than 100 police also raided Next Digital’s headquarters in Hong Kong, entering the newsroom and searching the desks.
Mr Simon said in a tweet that the police were executing a search warrant.
Next Digital operates the Apple Daily tabloid, which Mr Lai founded in 1995, ahead of Britain’s handover of Hong Kong to China.
Like Mr Lai, Apple Daily has a strong pro-democracy stance and often urged its readers to take part in pro-democracy protests.
The security law outlaws secessionist, subversive and terrorist acts, as well as collusion with foreign forces in the city’s internal affairs.
The maximum punishment for serious offenders is life imprisonment.
Last month, Chinese broadcaster CCTV said pro-democracy activist Nathan Law and five others were wanted under the law, although all six had fled overseas.
Mr Law had relocated to Britain in July to continue international advocacy work for Hong Kong.
Associated Press contributed to this article