His ship had just docked on Sunday in Nuuk to refuel on its way to "intercept" Japan's new whaling factory vessel in the North Pacific, the Captain Paul Watson Foundation (CPWF) said.
Video posted by CPWF on social media showed officers handcuffing Watson on the bridge of the John Paul DeJoria ship, putting him inside a police van on the dockside and driving him away.
Police said he would be brought before a district court where they will request his detention "before a decision is made on whether he should be extradited to Japan".
Watson, who featured in the reality TV series "Whale Wars", founded the Sea Shepherd and the CPWF organisations, and has drawn attention for direct action tactics, including confrontations with whaling ships at sea.
CPWF said it believed his arrest was in connection with an Interpol Red Notice related to Watson's previous anti-whaling activities in the Antarctic.
The group added that the arrest was a "surprise" since its lawyers had reported that the Red Notice had been withdrawn.
"However, it appears that Japan had made the notice confidential to facilitate Paul's travel for the purpose of making an arrest," a statement said.
Mothership
Japan's government on Monday made no comment but a spokeswoman for the Japanese coastguard told AFP it was aware of the arrest.
"The coastguard will continue to take appropriate steps based on coordination with related entities," the spokeswoman said.
CPWF said the ship was en route to the Northwest Passage in its campaign of "intercepting Japan's newly-built factory ship, the Kangei Maru, in the North Pacific".
The 9,300-tonne "mothership", which set off from Japan in May, butchers whales caught and killed by smaller vessels.
It boasts a powerful winch that can haul carcasses weighing as much as 70 tonnes up a ramp, as well as 40 freezer containers, each with a capacity of 15 tonnes of whale meat.
Tokyo argues that eating whale is part of Japanese culture and an issue of "food security" in the resource-poor country, which imports large amounts of animal meat.
But consumption of whale has fallen to around 1,000 or 2,000 tonnes per year compared to around 200 times that in the 1960s.
'Scientific'
Activists aggressively pursued the Kangei Maru's predecessor when, prior to 2019, Japan hunted whales in the Antarctic and North Pacific for what it said were "scientific" purposes.
That year Japan quit the International Whaling Commission and nowadays conducts commercial whaling, but only in its own waters, and on what it calls a sustainable scale.
The CPWF said however that it suspects Japan intends to resume high-seas whaling in the Southern Ocean and North Pacific by 2025.
It added that it believes the reactivation of the Red Notice against Watson is "politically motivated, coinciding with the launch of the new factory ship".
The Red Notice was issued in 2012, with an Interpol statement at the same saying Watson was wanted by Japan on charges of causing damage and injury in two incidents in the Antarctic Ocean in 2010 against a Japanese whaling ship.
