Deputy Inspector General of Police Vaas Gunawardena was arrested in the killing of Mohammed Shyam, 35, a businessman from the Colombo suburb of Bambalapitiya, The Daily News reported.
Shyam was abducted May 22 and his body discovered the following day in Dompe, a town around 20 miles from Colombo.
The Criminal Investigation Department said it is holding Gunawardena on charges including murder for financial gain and conspiracy to kill.
A police officer from the Criminal Investigation Department said four other policemen from the DIG's office also were arrested along with an underworld gang member in Shyam's death.
Shyam died in a suspected $23,500 contract killing, The Daily News reported.
An officer from the CID said four policemen from the DIG's office also were arrested along with an underworld gang member.
A report by the BBC said Shyam's body was found mutilated and with gunshot wounds in a rural area.
Shyam, a father of three, was reported missing after dining with a friend named as Fouzdeen who was later implicated through CCTV evidence and arrested, the BBC reported.
Fouzdeen reportedly confessed to being involved in the killing that involved a middleman known to associate with high-ranking police officers.
The BBC said Sri Lankan authorities rarely follow through investigations implicating senior officials or policemen.
Ethnic tensions remain high in Sri Lanka despite the end in 2009 of the protracted civil war between the majority Sinhalese federal army and Tamil rebels.
The United Nations estimates around 100,000 people were killed, including as many as 7,000 in the final, particularly brutal, year of fighting the Tamil Tigers -- officially called the Liberation Tigers of Tamil Eelam.
The Tigers were struggling for a separate homeland for Tamils in the northeast of the island nation, which lies several miles off the southern tip of the Indian subcontinent.
The federal government has initiated reconciliation moves and investigations into human rights abuses by both sides, but Tamils remain wary of military and police authorities.
Sri Lanka also remains a dangerous place for journalists reporting on sensitive political issues. The 2013 World Press Freedom Index compiled by Reporters Without Borders ranked Sri Lanka 162 out of 179 countries.
Last month, Human Rights Watch claimed little has been done by the government of President Mahinda Rajapaksa to increase respect for basic rights and liberties since the end of the civil war.
"Four years after Sri Lanka's horrific civil war ended, many Sri Lankans await justice for the victims of abuses, news of the disappeared and respect for their basic rights," Brad Adams, Asia director at Human Rights Watch, said.
"Instead, the Rajapaksa government has rejected investigations, clamped down harder on the media, and persisted in wartime abuses such as torture."
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