(Confirms arrest, adds details on Hussain and reports from Karachi)
LONDON/KARACHI, June 3 (Reuters) - Exiled Pakistani politician Altaf Hussain, leader of the powerful Muttahida Qaumi Movement (MQM), was arrested in London on Tuesday, a spokesman for the party said, sparking fears of a violent backlash in Pakistan.
Police said a 60-year-old man was arrested on suspicion of money-laundering during an early morning raid on a house in northwest London but declined to confirm his identity. Special operations officers were searching the property.
A spokesman at the MQM headquarters in north London confirmed that Hussain had been arrested and said further details would be releaed later.
Hussain, one of Pakistan's most divisive and controversial leaders, who is wanted at home in relation to a murder case, has lived in London in self-imposed exile since the early 1990s.
Known for his fiery addresses to his supporters in Karachi though a loudspeaker connected to a telephone, he effectively controls the violent port city from London.
His hold on Karachi is so strong that he is capable of shutting down entire neighbourhoods of the city of 18 million.
Supporters praise him as a business-oriented leader of Pakistan's middle class, but opponents describe him as a tyrant and accuse him of murder and violence.
Within minutes of his arrest, panicked shop-keepers and market stall owners rushed to close their businesses for fear of violence, residents said.
"We deployed extra security at the British High Commission in the southern part of Karachi as soon we learnt about Altaf Hussain's arrest in London through media," Deputy Inspector General Abdul Khalique Shaikh told Reuters.
"We have increased police patrolling and we are making further deployments at sensitive spots in the city," he added.
Mohammad Moosa, a resident of Karachi, told Reuters: "All shops and markets are shut. Even small cigarette shops are closed. Petrol station operators have also closed down, fearing violence."
The MQM party's support base is millions of Muslim Urdu-speaking people whose families migrated to Pakistan at the time of the 1947 partition. (Reporting by Belinda Goldsmith in London and Maria Golovnina in Islamabad, additional reporting by Syed Raza Hassan; Editing by Stephen Addison)