Britain will offer "every assistance" to Libya's government to ensure Muammar Gaddafi's son is brought to justice over his role in the "barbaric" reign of terror, the Prime Minister added.
Al-Islam was seized in southern Libya with two aides, who were trying to smuggle him out to neighbouring Niger, officials confirmed today.
Mr Cameron said: "The Libyan government's announcement of Seif al-Islam's arrest shows we are near the end of the final chapter of the Gaddafi regime.
"It is a great achievement for the Libyan people and must now become a victory for international justice too.
"He could have contributed to a more open and decent future for his country, but instead chose to lead a bloody and barbaric campaign against his own people. The fate of the Gaddafis should act as a warning to brutal dictators everywhere.
"Britain will offer every assistance to the Libyan government and the International Criminal Court to bring him to face full accountability and justice for what he has done.
"The Libyan government has told us again today that he will receive a trial in line with international standards, and it is important that this happens."
Al-Islam was flown to the city of Zintan in northern Libya tonight and is said to have told international reporters on the plane that he was in good health, saying that injuries on his right hand were caused by a Nato air strike a month ago.
Foreign Secretary William Hague said the arrest would allow Libya to "move on".
He said: "I welcome the arrest of Seif al-Islam. This represents another significant step forward in the transition to a new, democratic Libya.
"He must now be held to account for his actions, and face trial on the charges brought against him, including by the International Criminal Court.
"We stand ready to assist the Libyan government and the ICC to bring Seif al-Islam to justice. I welcome the Libyan authorities' commitment to ensure his detention and trial meet international standards. It is also essential that no effort be spared to bring the remaining ICC indictee, Abdullah Senussi, to justice.
"Seif al-Islam no longer poses a threat to peace and security in Libya. His arrest will allow the Libyan people to move on to the challenge of rebuilding their country.
"The international community stands ready to help and Britain is already providing support and assistance.
"I look forward to the announcement of a new transitional government, and to working closely with it to achieve their goal of a democratic and prosperous Libya."
As Gaddafi's most high-profile son, al-Islam was regarded as the presumptive heir.
He always denied such an ambition but was a key member of his father's inner circle. He had friends in high places and repeatedly courted scandal.
In February he told Libyans on state-run television that "rivers of blood" would flow with "thousands" of deaths if the uprising did not stop.
His PhD from the London School of Economics was shrouded in controversy, even prompting the British ambassador to the US to deny claims that he helped the dictator's son with his thesis.
At the time, the Foreign Office confirmed that Sir Nigel Sheinwald met al-Islam during his time at the LSE but said he did not play any part in the writing of his thesis.
In March this year, Sir Howard Davies resigned from his post of director at the LSE over the university's links to the Gaddafi family.
He said the decision to accept £300,000 funding from the Gaddafi International Charity and Development Foundation in 2009 had "backfired" and expressed regret that he had visited Libya to advise the regime about how it could modernise its financial institutions.
It was announced that an independent inquiry into the extent of LSE's links with Libya would be carried out by former Lord Chief Justice Lord Woolf.
In 2009 al-Islam reportedly attended a shooting party at Lord Rothschild's Waddesdon Manor in Buckinghamshire, which was also attended by Lord Mandelson when he was Business Secretary.
Lord Mandelson and al-Islam reportedly met at Lord Rothschild's villa in Corfu, days before the announcement that Lockerbie bomber Abdelbaset Ali Mohmed al-Megrahi was to be freed on compassionate grounds.
Al-Islam later accompanied the dying terrorist back to Libya.
In London he apparently enjoyed a playboy lifestyle.
Two years ago he moved into a multimillion-pound house in Hampstead and threw a lavish party in Montenegro for his 37th birthday, to which Lord Rothschild and his business associate, Russian oligarch Oleg Deripaska, were reportedly invited.
Earlier this year, David Miliband said it was "horrific" that al-Islam had delivered an LSE lecture in his late father's name.
The Ralph Miliband memorial lecture was given by al-Islam last May.
Asked on BBC1's Andrew Marr Show about the memorial lecture, former Labour foreign secretary Mr Miliband said: "It's horrific. The idea of Seif Gaddafi giving a lecture under his name is just horrific to him and horrific to the whole family, obviously."
During the civil war al-Islam became one of the main spokesmen for his father's administration.
When Tripoli seemed set to fall to the rebels, he appeared outside a hotel in the the capital, meeting loyalists and talking to Western reporters.
Local reports suggest he was also in Sirte, where his father was discovered and killed.
Libyan officials said he was wounded when he was captured by freedom fighters and is recovering in hospital.
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