“The suspect has been arrested on orders of the Vienna prosecutors” and transferred to prison after a search of his home, said an interior ministry statement.
Police seized a mixing desk, hard discs, weapons, a military flag from the Third Reich era and other Nazi objects during their search.
Austrian intelligence officers had been trying for months to unmask the rapper, who went by the pseudonym Mr Bond and had been posting to neo-Nazi forums since 2016.
The suspect, who comes from the southern region of Carinthia, has been detained for allegedly producing and broadcasting Nazi ideas and incitement to hatred.
“The words of his songs glorify National Socialism (Nazism) and are anti-Semitic, racist and xenophobic,” said the interior ministry statement.
One of his tracks was used as the sound track during the October 2019 attack outside a synagogue in the eastern German city of Halle.
In posts to online forums based in the United States, the rapper compared the man behind the 2019 Christchurch shootings that killed 51 people at a New Zealand mosque to a saint, and translated his racist manifesto into German.
Last September, an investigation by Austrian daily Der Standard and Germany's public broadcaster ARD said that the musician had been calling on members of neo-Nazi online forums and chat groups to carry out terrorist attacks for several years.
They also reported that his music was used as the soundtrack to the live-streamed attack in Halle, when a man shot dead two people after a failed attempt to storm the synagogue.
During his trial last year for the attack, 28-year-old Stephan Balliet said he had picked the music as a “commentary on the act”. In December, a German court jailed him for life.
“The fight against far-right extremism is our historical responsibility,” Austria's Interior Minister Karl Nehammer said Tuesday.
Promoting Nazi ideology is a criminal offence in Austria, which was the birth place of Adolph Hitler.