Jagan Reddy had ordered a thorough probe into the extortion case, saying no one should be spared.
Andhra Pradesh Chief Minister Jagan Mohan Reddy's cousin was arrested in an extortion case on Monday following an investigation ordered by the YSR Congress chief himself, the police said.
A local YSR Congress leader, YS Konda Reddy was allegedly extorting money from a construction firm owner for a tender to be awarded to them in the Kadapa district.
The construction company belonged to a powerful BJP leader in Karnataka and was engaged in the development of Vempalli-Rayachoti road in Kadapa, in the Chief Minister's Pulivendula constituency.
The arrest marked one of the rare instances of a politician in the country ordering action against their own family.
Jagan Reddy had ordered a thorough probe into the extortion case, saying no one should be spared.
Following the order, the Chakrayapet police had registered a case against Konda Reddy.
Konda Reddy's call data revealed he made many calls to the construction company representatives in recent days.
Kadapa Superintendent of Police KK Anburajan told reporters Konda Reddy had on May 5 called the road works contractor and demanded bribe. He threatened to get the work stalled, using his clout in the government, if the bribe was not paid.
"We registered a case against Konda Reddy. Accordingly, he was arrested on Monday," Mr Anburajan said.
The accused was produced in a local court and remanded to judicial custody.
The police officer asked people to call the police on 14400 or 100 if anybody demanded money and made threats.
"We will act tough against such people and not spare anybody," Mr Anburajan said.