The accused, identified as Jaswant Singh Charabande, is posted as sub divisional magistrate (SDM) in Narmada Valley Development Authority (NVDA), police said.
According to police, he had demanded money from the woman's son for allotting a plot of their choice. The woman and her family were affected by the submergence of her land due to construction of Sardar Sarovar dam.
The action was taken based on the complaint lodged by the woman's son Prem Singh.
"Charabande was caught red-handed from his office while allegedly accepting the bribe," Lokayukta superintendent of police (SP) Dilip Soni said.
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