Sources said Panda, a native of Mayurjhalia village in Nayagarh and a graduate in Mathematics, was arrested in Odisha's Ganjam district by the state police.
Director General of Police Sanjeev Marik informed that Panda was nabbed during a police raid at a hideout following intelligence inputs.
According to earlier reports, AAP had offered membership to Panda. The report further quotes sources as saying, "AAP-Sabyasachi Panda political negotiation has been going on since January following the Maoist leader's attempt to manage political space in ruling Biju Janata Dal failed."
Earlier, the party's state unit chief Nishikanta Mohapatra also told reporters, "We are not opposed to anyone joining the party as long as someone willing to operate within our constitutional framework."
Panda had hit international headlines in 2012 after he engineered the kidnapping of two Italians. He was expelled by the CPI(Maoist) soon after.
He was also wanted in more than 50 criminal cases, including the murder of Swami Laxamananda Saraswati and four of his aides in Kandhamal district in 2008 that had triggered communal violence in the region.
AAP had offered membership to Panda during 2014 elections
The hunt for Panda was intensified recently after he floated a new party, the Communist Party of India (Marxist-Leninist-Maoist). The aim behind the creation of the new party was to bring like-minded "revolutionaries" on a single platform.
Security forces feared that post the creation of the new party, Panda could order a step up in violence in the state's Naxal-infested districts, like Ganjam, Kandhamal, Gajapati and Rayagada.