The woman, whose identity has been withheld, was murdered in March 2015, by the driver Surendrakumar Alho Sav, they said.
Sav was arrested from Kashi Nagar area of Bhayander yesterday. He said that he had an illicit relationship with the woman, Palghar Superintendent of Police Sharada Raut said.
On March 20 last year, the woman's body, packed in a gunny bag, was found abandoned in Tumbdepada village in the district. The body had stab wounds on its neck and stomach, Raut said, adding a case of murder was registered.
Sav was married and had three children. The accused did not want his wife or children to know about their relationship, police said.
Therefore, he decided to kill her and took her to an isolated place in Chinchoti on the pretext of taking her for a ride. He then allegedly strangulated her and then attacked her with a knife, the officer said.