The suspect, Antonio Reyes, was arrested in Bohol and is being held in Cebu, Chief Inspector Narvin Sanchez said.
Reyes, originally based in Cebu, had allegedly provided home-made explosives to contacts of Al-Ghozi in November 2000 for about P80,000.
Police arrested Al-Ghozi last year and tracked down a 1.2-ton cache of explosives in a hideout he used in General Santos. He was later sentenced to 17 years in jail.
He subsequently confessed in jail that he planned to use the explosives acquired from Reyes to bomb Western targets in Singapore.
Chief Superintendent Robert Delfin, Cebu police director, said Reyes was arrested by virtue of an arrest warrant issued by Judge Ireneo Gaka of the Cebu City regional trial court.
Reyes is also alleged to have supplied the explosives used in a series of bombings by Al-Ghozi-linked militants in Manila in December 2000. The attacks claimed 22 lives.
Reyes is not a member of any rebel group but is reputed to be a longtime dealer of explosives, made from ammonium nitrate, to illegal dynamite fishermen and small-scale miners.
Al-Ghozi, an Indonesian, escaped from a police jail last month, much to the embarrassment of President Arroyo.
Armed forces chief Gen. Narciso Abaya said yesterday that Al-Ghozi had apparently evaded a military dragnet in Lanao del Norte and is believed to have slipped to Maguindanao.
"The latest report is that he is in the Kabuntalan area in Maguindanao. The report says that there is an armed group protecting him, giving him security. We do not know what group this is," the general said.
Maguindanao is known to be a haunt of the Moro Islamic Liberation Front (MILF), the country’s main Muslim separatist rebel group which is alleged by the military to have ties with foreign Muslim extremist organizations like Jemaah Islamiyah.
The government has sealed a ceasefire with the MILF to pave the way for peace talks with the group.
The MILF has denied accusations that they have ties to terrorist groups like the Jemaah Islamiyah.
MILF spokesman Eid Kabalu meanwhile confirmed that the military was massing its forces in Maguindanao, apparently to search for al-Ghozi.
However he said it "impossible for Al-Ghozi to be immediately in Maguindanao" as he could not have entered the area by land.
Kabalu reiterated that the MILF would arrest Al-Ghozi if he fell into their hands. — With Mike Frialde, Christina Mendez