Reddy was caught near Japa Square in Erasama area of Jagatsinghpur district in the wee hours while he was trying to move out of the place, Inspector Gupteswar Bhoi said.
After being arrested, the anti-Posco leader was taken to Kujang police station amid tight security and then produced before a local court which remanded him to judicial custody for two weeks, he said.
Reddy, against whom two first information reports, were filed in connection with the December 14 violence that left D Swain dead and injured 25 others, had been camping in the area after the arrest of Posco Pratirodh Sangram Samiti president Abhay Sahu about a month ago, sources said. "I have been framed in false case," Reddy claimed.
With the arrest of the CPI leader, the number of people arrested in connection with the clash rose to seven.
Meanwhile, key accused in the clash Bapi Sharkhel of Paradip Paribahan Company, who had been arrested from Chhattisgarh, was produced before a magistrate at Kujanga and sent to jail for 14 days following rejection of his bail application, they said.
Sharkhel was brought from Chhattisgarh to Kujanga by a special police team of Odisha. An FIR had been filed at Kujang police station naming him as an accused in the December 14 clash between anti-Posco brigade and people engaged by a contractor for construction of a coastal road to link Paradip and the mega steel project site.
The police had earlier raided the office of Sharkel on the basis of the FIR.
Other cases were also pending against him in different police stations in Jagatsinghpur district, the police said.
Sharkel was one of the accused in the clash between the anti-Posco brigade and the contractor group. The incident had sparked uproar in the state assembly.
Claiming to be innocent, Sharkhel told the media that he had full faith in Chief Minister Naveen Patnaik and the judicial system and hoped truth would finally come to light.