French gendarmes arrested him at 05:30 GMT on Saturday, the ministry added.
A Hutu businessman, Kabuga is accused of funding militias that massacred about 800,000 Tutsis and moderate Hutus over 100 days in 1994.
Rwanda's two main ethnic groups are the Hutus and Tutsis, who have historically had an antagonistic relationship and fought a civil war in the early 1990s.
"Since 1994, Felicien Kabuga, known to have been the financier of Rwanda genocide, had with impunity stayed in Germany, Belgium, Congo-Kinshasa, Kenya, or Switzerland," the statement said.
The arrest paves the way for bringing the fugitive in front of the Paris appeal court and later to the International Court of Justice in The Hague, it said.
Kabuga was indicted on genocide charges by the International Criminal Tribunal for Rwanda.
The fugitive was thought to have been residing in Nairobi, Kenya, for years as alleged by Stephen Rapp, the US ambassador at-large for war crimes issues. This led to the US governmentdemand that the country hand him over to authorities.
But, the Kenyan government has denied such allegations.
Two other Rwandan genocide suspects, Augustin Bizimana and Protais Mpiranya, are still being pursued by international justice.
"The arrest of Felicien Kabuga today is a reminder that those responsible for genocide can be brought to account, even twenty-six years after their crimes," Serge Brammertz, chief prosecutor for the International Residual Mechanism for Criminal Tribunals, said in a statement immediately after the arrest.
He added: "Today's arrest underlines the strength of our determination."
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