The Dutch man was arrested about 50 miles away from Lake Dal, Indo-Asian News Service reported. He was apparently trying to flee the area.
"A 24-year-old British national was found murdered in a local houseboat this morning. A Dutch national, Dewit Richard, has been detained for investigations in this connection," Inspector General of Police Kashmir Abdul Ghani Mir said.
Mir said the suspect was staying in a room next to the victim on the houseboat and left in the middle of the night. He took only his passport, leaving his other belongings in his room.
Investigators were not sure if the victim was sexually assaulted. An autopsy was planned.