Prosecutors accuse Palocci of having a "criminal relationship" with the Odebrecht construction company by facilitating contracts worth millions through Petrobras for the company to obtain credit from a state bank in exchange for donations to the ruling Workers' Party.
José Roberto Batochio, Palocci's lawyer, told O Globo that he is not aware of what charges his client is facing.
"I do not know the charge because until now it is secret, in a style of military dictatorship. You do not know anything, do not know what is being investigated. On a fine day they are knocking at your door to take you," Batochio said of the arrest Monday.
Palocci is also accused of mediating bribes as a third-party player even after he left his Cabinet position.
The Workers' Party was headed by former President Luiz Inacio Lula da Silva, who will face a corruption trial also related to Petrobras, and former President Dilma Rousseff, who was impeached by Brazil's Federal Senate on accusations of covering up budget deficits by taking out unauthorized loans from state banks and of spending money without congressional approval during the 2014 presidential campaign.
Palocci's arrest comes after last week's high-profile arrest of a former Workers' Party official, former Brazilian Finance Minister Guido Mantega, who is accused of taking a $5 million bribe for Brazil's Workers' Party.