Zandile Gumede, 58, who has led Durban for the past three years, faces charges of embezzling public funds and money laundering, according to a statement released by the city.
"The municipality will co-operate fully with the legal process," said Msawakhe Mayisela, spokeswoman of the southeastern city.
The arrest comes in the wake of investigations by the special police investigations unit known as the Hawks into fraud and corruption involving a 208-million-rand (USD 14.6-million) tender to treat solid waste.
After a brief hearing in court on Tuesday, Gumede was freed on 50,000-rand bail, according to the police. She and 11 other suspects facing similar charges will return to court on August 8.
This is the latest corruption scandal involving officials of the ruling African National Congress (ANC) party, in power for the past 25 years since the downfall of apartheid.
The result was nevertheless the ANC's poorest showing since Nelson Mandela led it to its first electoral victory in South Africa's first multi-racial polls in 1994.
The party has battled numerous corruption scandals, sluggish economic growth, record unemployment and poverty -- issues President Cyril Ramaphosa, a veteran of the anti-apartheid struggle, has promised to tackle.
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