The radical leader had threatened both Bhagwant Mann and Amit Shah.
The decision to act against Khalistan sympathiser Amritpal Singh was taken by top Home Ministry and Punjab police officials after he led the violent February 24 attack on a police station in Ajnala on the outskirts of the Amritsar city, sources said.
Amritpal and his supporters, some of them brandishing swords and guns, had barged into the Ajnala police station, using the Sikh holy book as shields, to extract an assurance from the police that his key aide, kidnapping accused Lovepreet Singh, would be released.
The radical leader had then threatened both Punjab Chief Minister Bhagwant Mann and Home Minister Amit Shah.
Sources say that the attack on the police station indicated That Amritpal was succeeding in inciting people under the guise of religion, and was building an independent group of armed supporters.
Videos of Amritpal's close aides carrying weapons with 'Anandpur Khalsa Force' logo have been found. Home Ministry sources said he was planning to launch a statewide procession to baptize the youth of the state into devout Sikhs.
The Khalistani leader was using de-addiction centres to stockpile weapons illegally sourced from Pakistan, they said.
Six police personnel, including a Superintendent of Police rank officer, were injured during the Ajnala clash.
The BJP had demanded Governor's rule in the state, and the Punjab Congress sought the arrest of Amritpal Singh and his supporters for attacking police personnel.
Punjab police was heavily criticised for dragging its feet in taking action.