Andrew Mountbatten-Windsor has been released from police custody after his arrest on suspicion of misconduct in public office.
It is believed the arrest relates to allegations he passed sensitive government documents to the late sex offender Jeffrey Epstein.
The former prince was taken into custody by Britain's Thames Valley Police on Thursday morning, local time, with officers also searching two properties associated with him.
Noting the "significant public interest" in the case, Thames Valley Police said a man in his 60s was arrested "on suspicion of misconduct in public office, and is carrying out searches at addresses in Berkshire and Norfolk".
In a statement published almost 12 hours after the arrest, police said he was "released under investigation" and that officers' searches in Norfolk had concluded.
The ABC understands police are still scouring his former Windsor home for information.
It follows revelations in the latest tranche of files related to Epstein, which surfaced allegations that Mr Mountbatten-Windsor had passed on documents to the disgraced financier during the former prince's time as a trade envoy.
He was stripped of his royal titles by his brother, King Charles III, last year.
[MAP]After the arrest, Buckingham Palace released a statement from the king stating that authorities "have our full and wholehearted support and co-operation".
"I have learned with the deepest concern the news about Andrew Mountbatten-Windsor and suspicion of misconduct in public office," King Charles said.
"What now follows is the full, fair and proper process by which this issue is investigated in the appropriate manner and by the appropriate authorities," the king said.
UK media reported that Prince William and Princess Kate supported their father's statement, but have not publicly commented on the latest developments.
The arrest of Mr Mountbatten-Windsor fell on his 66th birthday.
Epstein files emails prompted investigation
Mr Mountbatten-Windsor's arrest is the latest development in the long-running saga involving the former prince and his alleged connections with Epstein.
Revelations in the latest release of documents from the US Department of Justice have roiled British politics in recent weeks.
They include allegations that a former UK minister and ambassador in Washington, Peter Mandelson, passed sensitive information about UK government assets and a European Union bailout to Epstein in 2009 and 2010.
Mr Mandelson's position is understood to be that he denies any wrongdoing, British media have reported.
The revelations about Mr Mandelson damaged the leadership of British Prime Minister Sir Keir Starmer, who chose him to represent the UK in Washington.
Police did not directly link Mr Mountbatten-Windsor's arrest to the Epstein files, but documents in the Justice Department's disclosures have cast a cloud over the former royal's role as a trade envoy between 2001 and 2010.
One email appeared to show Mr Mountbatten-Windsor had sent the late sex offender a "confidential brief" on investment opportunities in Afghanistan.
"I am going to offer this elsewhere in my network (including Abu Dhabi) but would be very interested in your comments, views or ideas as to whom I could also usefully show this to attract some interest," the email from "HRH The Duke of York KG" reads.
"I have sadly already found out that the Gates Foundation doesn't do anything in Afghanistan."
