Bryn Jones, 73, a former Rolls-Royce chief combustion technologist, was arrested after the security services received intelligence that classified information may have been passed to Beijing, The Sun newspaper reported.
British plane engines manufacturer Rolls-Royce, based in Derby, central England, carried out top-secret work on the take-off and vertical landing system for the F-35B Lightning II supersonic jet, being built by US defence firm Lockheed Martin.
British police do not confirm the identity of suspects who have not been charged with an offence.
"The man, who is in his 70s and worked within private industry, was taken to a police station in Derbyshire," the spokeswoman said.
"He was released under investigation later that evening.
"Police officers executed a search warrant at an address in the West Midlands, which is now complete. A search at an address in Derbyshire is ongoing.
"We are not prepared to discuss further at this stage given the nature of the investigation." Jones lists himself on the LinkedIn professional social network as a visiting professor at the Aeronautical University of Xian in central China.
His page says he worked for Rolls-Royce from 1968 to 2003.
Contacted by AFP, Rolls-Royce said they could not comment on an ongoing police investigation.
Proponents of the F-35 tout its speed, close air-support capabilities, airborne agility and a massive array of sensors giving pilots unparallelled access to information. Nine international partners including Britain, Canada and Turkey are helping pay for the jet's development and are buying hundreds more of the planes.
The F35-B has short take-off and vertical landing capabilities and Britain received delivery of its first four jets last week.
A replacement for the Harrier G9 and the Tornado GR4, it is intended to be Britain's primary strike attack aircraft over the next three decades.
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