Mr Thomson's case, which has been a running sore for Labor, has now entered a critical phase just as Prime Minister Julia Gillard had seized the initiative with her September 14 election announcement.

Government and opposition figures reacted cautiously to the news of Thursday's arrest, eager to avoid the legal pitfalls of commenting on matters before the courts.

Mr Thomson faces 150 charges of fraud, any one of which has the potential, if he were found guilty, to force his disqualification from Federal Parliament. But legal experts said it was unlikely that court proceedings would be concluded before the election.

A more immediate threat comes from the massive hit to the MP's finances associated with funding his legal defence.

Fairfax Media last year revealed that NSW Labor had paid almost $350,000 in legal costs relating to Mr Thomson before the MP was suspended from the party in May.

An extract of a report from NSW Labor's finance committee, prepared for the state conference, showed $240,000 of that amount was to cover a defamation settlement with Fairfax Media.

It is understood that party officials had been worried that if the ALP had not footed the bills, Mr Thomson could have gone bankrupt, disqualifying him from being an MP and causing a byelection that could imperil the minority Gillard government.

It remains unclear how Mr Thomson will meet his new costs, having left the party and having no visible means of outside support.

If a byelection were required, it would be a matter for the Speaker of the House of Representatives, Anna Burke, to issue the writs. But with an election date set, that is seen as unlikely.

Opposition Leader Tony Abbott was alerted to the news about Mr Thomson's arrest during the question-and-answer session of his National Press Club address.

''We have certainly respected, or tried to respect, the rule that you do not comment on the specifics of cases which are currently before the courts and we will respect that rule,'' he said.

But he said the matter again raised questions about the judgment of Ms Gillard, whom he claimed ran a ''protection racket'' for Mr Thomson. The Opposition would continue to pursue those judgment questions.

Coalition workplace relations spokesman Eric Abetz questioned what Ms Gillard knew and when, hinting that she might have been tipped off before she announced the election date on Wednesday.

This suggestion was rejected by Ms Gillard while she toured flood-affected Bundaberg, describing Mr Thomson's situation as ''something for the police''.

Asked if she had any prior knowledge about the arrest, she said: ''Of course not.''

Trade Minister Craig Emerson would not be drawn on whether Mr Thomson, now an independent MP, should stand at the next election.

''Let the investigative processes continue without political interference,'' he told Sky News, adding that Mr Thomson was entitled to the presumption of innocence.

''There has been no finding

of guilt against Mr Thomson,'' he said.

Mr Thomson has strenuously denied that he misused union funds to pay for prostitutes, air travel, entertainment and cash withdrawals when he was Health Services Union national secretary from 2002 to 2007.

His lawyer, Chris McArdle, was scathing about the arrest process as he defended his client's innocence.

He criticised the way police had handled the arrest, complaining that journalists had received more warning than Mr Thomson.

A spokesman for NSW Police said Mr Thomson had been arrested because he refused an invitation before Christmas to surrender himself.

''I believe that, from reading the warrant, he was invited to travel to Victoria to surrender himself prior to Christmas, he didn't do that,'' he told reporters. The spokesman described Mr Thomson's demeanour as calm.

''He's accepted what's been said to him, he hasn't argued.''

Mr McArdle denied the NSW police account, saying Mr Thomson had only been invited to go to Victoria for an interview.

''It is untrue to say we were invited to go and surrender our client for arrest,'' he told ABC TV. ''If we had been given that invitation, we would have done so.''

He explained that Mr Thomson had declined to be interviewed because he lived in a liberal democracy, "whereby you are not obliged to answer questions''.

Mr Thomson will be disqualified from Parliament if he is convicted of a criminal offence that carries a jail term of one year or more.

HSU national president Chris Brown said that the union had received the news about Mr Thomson's arrest on Thursday, ''like everyone else''.