"Carlos", Ilich Ramirez Sanchez, 47, is wanted for the 1973 shooting of Joseph Sieff, then president of Marks & Spencer and vice-president of the Zionist Federation in Britain.
Mr Sieff was attacked at his home in St John's Wood, north London. He survived thanks to exceptionally strong teeth which reduced the bullet's impact, and to his wife, who turned him over on his stomach to stop him choking. He was paralysed for a time, but recovered almost fully and lived for nine years.
Carlos reportedly told Al Watan al Arabi, a Paris-based magazine, in 1979 that he had been the gunman. "I usually fire three times around the nose," he said. "But ... only one bullet went off, though I fired three times."
Carlos allegedly hid the gun at the west London flat of a Basque woman, one of several girlfriends in London, where it was later found.
A Scotland Yard spokeswoman said: "We have officers in France liaising with the French police in connection with a man in custody in France. This is part of an on-going inquiry into terrorist activities in the United Kingdom in the 1970s."
Police sources discounted suggestions that the action had been prompted by the release of a new book about Carlos. It is understood that the family of Mr Sieff have been pressing the police to make further inquiries.
There was no immediate suggestion that Carlos would face charges in Britain, however.
The Venezuelan-born self-styled revolutionary is accused of killing at least 83 people. He was captured in Sudan in 1994 and is awaiting trial in Paris for up to 15 murders.