The youngster was last seen in Paderborn, West Germany, in 1981. She was just two-years-old.
Police are searching a terraced home on Abbey View Road, Moredon.
An Army spokesman said: “We can confirm that an arrest was made on 23 September by the Royal Military Police in connection with the disappearance of Katrice Lee in 1981
“As this is an ongoing investigation we cannot comment further at this stage.”