Serbia on Thursday arrested Europe's most wanted man, former Bosnian Serb military chief Ratko Mladic, ending a 16-year manhunt for the general accused of masterminding the 1995 Srebrenica massacre.

President Boris Tadic said the 69-year-old had been detained by Serbian security forces, predicted that the capture would foster reconciliation within the Balkans.

"Today, early in the morning, we arrested Ratko Mladic," Tadic told reporters.

"The extradition process is underway," he added, referring to the process to transfer Mladic to the International Criminal Tribunal for the former Yugoslavia (ICTY), a UN tribunal based in The Hague.

According to Serbia's deputy war crimes prosecutor Bruno Vekaric, it could take up to seven days before Mladic is handed over to The Hague after he is first brought before a court in Serbia and receives a medical check-up.

Mladic, the ICTY's most wanted fugitive, faces charges of genocide, crimes against humanity and war crimes for his role in the Srebrenica massacre and the bloody siege of Sarajevo during the 1992-95 conflict.

Tadic would not say how and where Mladic was arrested other than the confirm he was captured on Serbian soil.

But Serbian security sources told AFP that three special units swooped on a house in Lazarevo around 80 kilometres (50 miles) southwest of Belgrade and close to the Romanian border early Thursday.

The house was owned by a relative of Mladic and had been under surveillance for the past two weeks, one of the sources added.

His arrest follows heavy pressure from the European Union which has made clear that Serbia's failure to capture Mladic was a major obstacle to its hopes of joining the 27-nation bloc.

In his press conference, Tadic stressed the arrest had come about as "a result of the full cooperation with the Hague war-time tribunal".

"I am convinced that this way we have opened the door to candidacy status and negotiations and finally to EU membership," he said.

In Brussels, officials reacted with delight but stressed they wanted to see Mladic in The Hague as soon as possible.

"Justice has been served and a great obstacle on the Serbian road to the European Union has been removed," Enlargement Commissioner Stefan Fuele said.

French President Nicolas Sarzoky, hosting a G8 summit in Normandy, said it was "another step towards Serbia joining (the EU) one day soon". UN chief Ban Ki-moon also hailed "an historic day for international justice."

Earlier in the day, it had emerged that the special prosecutor for the ICTY had again accused Belgrade in a new report of not doing enough to capture Mladic and the former Croatian Serb leader Goran Hadzic.

The report by the prosecutor, Serge Brammertz, was seen as crucial to Serbia's hopes of being made an official EU candidate nation by the end of this year.

After the arrest, Brammertz told AFP that it meant Serbia had "fulfilled one of its international obligations".

The Bosnian Serb wartime political leader Radovan Karadzic, Mladic's mentor, was captured in July 2008 and he is currently on trial in The Hague.

Mladic's capture ends a tortuous political and judicial saga since he was first indicted by the ICTY for his leadership role in the 1992-1995 Bosnian war as the former Yugoslavia fell apart.

The indictment against him specifically cites the establishment of camps and detention centres for Bosnian Muslims as part of a campaign of ethnic cleansing, as well as the July 1995 Srebrenica massacre and the 44-month siege of Sarajevo.

At Srebrenica, which had been under nominal UN protection, 8,000 Muslim men and boys were rounded up and massacred in Europe's worst atrocity since World War II.

"After 16 years of waiting ... this is a relief," Hajra Catic, head of the Srebrenica Women association, told AFP after the arrest. Catic's son and husband were killed in the massacre.

The UN indictment says Mladic was the operational mastermind behind the slaughter, the only episode during the bloody Bosnian war that was ruled a genocide by the court.

Mladic was able to evade capture for almost 16 years since his indictment in 1995. Regared by many Serbs as a war hero, he lived almost openly in Belgrade until 2000 when former Yugoslav president Slobodan Milosevic, was toppled. The ouster of his one-time mentor robbed Mladic of his untouchable status.

Even afterwards, though, Mladic hid under military protection, authorities in Serbia have admitted.