Muhammad Basri, from the Eastern Indonesia Mujahideen, was caught in a joint operation between the police and military in Poso district, on rugged Sulawesi island, while another member of the group was shot dead.
"He was caught on Poso's south coast this morning," police spokesman Boy Rafli Amar told AFP, adding he had been taken to a nearby city.
It came two months after the group's leader and Indonesia's most wanted extremist, Santoso, was shot dead by troops, ending a years-long hunt for the Islamic State (IS) group supporter.
Basri had been the deputy leader of the Eastern Indonesia Mujahideen, which has been hiding out in the jungles of Sulawesi for years but now has just a handful of members.
He was seen as a successor to Santoso, although it is not clear if he had officially taken over leadership of the group.
After Indonesia suffered a string of Islamic extremist attacks in the early 2000s, including the 2002 Bali bombings that killed more than 200 people, authorities launched a crackdown that weakened the most dangerous networks.
The picture changed recently, with other IS-linked cells on the main island of Java considered a greater threat.
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