Acting on a European arrest warrant from German police, their Portuguese counterparts "detained a German citizen suspected of paedophile practices abroad," according to a police statement.
Police did not identify the suspect, but Portuguese newspapers named the man on Sunday as Ulrich Schulz, a 59-year-old New Age musician known by his stage name, Oliver Shanti, whose music has been included in two of the popular Buddha Bar compilations.
Police said the man had been a regular visitor to Portugal for more than five years and would be taken before a court in Lisbon, before his likely handover to German authorities.
The Portuguese news agency Lusa said the man is suspected of more than 100 pedophile crimes committed on young members of a sect he formed in Bavaria in the 1980s.
He later set up home in the village of Vila Nova de Cerveira in northern Portugal which in 1994 honored him with a medal in recognition of his contribution to the local community.
"At the time, we could not imagine that this man could be suspected of paedophile acts," said the Vila Nova mayor, Jose Manuel Carpinteira, pointing out that the musician had donated several vehicles to local emergency services.