The United Nations said that up to 9,000 serious human rights violations could have been committed during the war, including forced disappearances, torture and executions.
It is understood that the man was a supporter of the then-government of Nepal during the conflict.
A third party made allegations against him to counter-terrorism teams in the UK, who then began their own investigation.
If charged, the man could face prosecution in Britain because torture is an offence of universal jurisdiction, and he has been living in the UK for some years, Scotland Yard said.
However officers would need to gather corroborating evidence in this country to support any charge. The man was arrested on suspicion of torture contrary to Section 134 of the Criminal Justice Act 1988.