Säpo confirmed that IS-member Mutar Muthanna Majid was arrested following a large joint police operation which began at 18:30 at Migration Agency accommodation for asylum seekers in Boliden in Västerbotten.
National police commissioner Dan Eliasson described the arrest Friday morning as a "fairytale.
"To a certain extent, I think it is a fairytale. Up in northern part Sweden, in the snow and out there in the forest in a small village, we were able to find a suspected terrorist… After a combination of important factors, we could arrest him in a small, small village out in the wilderness. I'm very happy about that".
Säpo spokesperson, Sirpa Franzén, confirmed to TT Thursday, that the national threat level, which was raised on Wednesday from three to four on a five-grade scale, remains unchanged.
She told Swedish Radio News that the investigation is continuing in several areas of Sweden.
According to newspaper Dagens Nyheter, the operation took place at asylum accommodation in Boliden, which consists of four buildings, containing apartments.
"I saw several vehicles from the task force, I felt a little uneasy," said one witness to DN.
Another person described what they saw.
"I went in and looked through the window and saw how the police came running with weapons and shields and searched several apartments. When they came out, they had several people," said an eyewitness.
The local newspaper Norran reported that nine people were brought in for questioning by the police in the operation in Boliden. The paper spoke to an anonymous witness who said that a man, who he believes is the suspect, ran out onto a balcony, where he was overpowered.
Earlier, Swedish media released a photo of a man suspected of plotting a terror attack in Europe, and security was stepped up at "strategic objects" in Sweden.
Tabloid Aftonbladet had received information from a police source that Mutar Muthanna Majid was not alone and had other followers in Sweden.
As of 22:10, Thursday, Säpo had not revealed a great deal about the operation, and in particular, whether they had received any tips from the public as to the location of their suspect.
The arrested suspect is believed to be an Iraqi citizen who has fought for IS in Syria, and according to Swedish Television News, he is around 25 years old and has some form of connection to Sweden.
(The 22-year-old was later released and freed from all suspicion).