Bangladesh police said Sunday they had arrested the brother of a notorious insurgent leader whose organisation has been blamed for murders and drug trafficking in sprawling Rohingya refugee camps.

The country is home to around 850,000 members of the stateless Muslim minority, who live in patchwork and overcrowded settlements after fleeing systemic discrimination and violence in neighbouring Myanmar. 

The Arakan Rohingya Salvation Army militant group has been accused of assassinating political opponents, running narcotics and instilling a climate of fear in the camps. 

Mohammad Shah Ali, arrested late Saturday by the elite Armed Police Battalion, is the half-brother of ARSA's infamous leader Ataullah Abu Ammar Jununi.

He was caught in a camp near the coastal city of Cox's Bazar with "arms and drugs," the battalion said in a statement.

Commanding officer Naimul Haque told AFP that Ali had admitted his links with ARSA and that "Ataullah was in regular contact with him".

He also said police had rescued one person kidnapped by Ali, without giving further details.

A Rohingya refugee living in Nouakar Mat camp confirmed the arrest to AFP.

"Everyone here is terrified by him," said Mohammad Salim. "(He) used to oppress us."

Nearly all of the Rohingya refugees living in the border camp arrived in the wake of a brutal Myanmar military crackdown -- now subject to a genocide investigation at The Hague -- that began after ARSA attacks on Myanmar police posts in 2017. 

Ali's capture was the most high-profile arrest of an ARSA member since the group was accused of murdering influential Rohingya community leader Mohib Ullah in September, and killing seven others at an Islamic seminary soon after.

Bangladesh authorities launched a dragnet in the camps after the murders, arresting hundreds of people.

Tom Andrews, the UN special rapporteur for Myanmar, visited the camps last month and blamed ARSA for much of the crime committed there.

There was no immediate comment from ARSA on Saturday's arrest.

But in a recent video message, Ataullah denied the group's involvement in the drug trade, instead accusing Bangladesh authorities of trafficking methamphetamine pills and blaming Rohingya refugees.