Tension remains high in the semi-autonomous southern Chinese city after more than two months of street blockades by demonstrators seeking free leadership elections. Lai's home and office were firebombed last week and he was also targeted during the protests.
The rallies ended in December when protest camps were cleared, but police have vowed to investigate the "principal instigators".
Lai, 66, whose company produces the outspoken Apple Daily newspaper, had been asked to report to Wanchai district police headquarters Wednesday.
"I have been arrested," he said, after his release.
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He added that he had been accused of two offences, "organising and assembling an illegal assembly, and participating in an illegal assembly".
Asked if police would take further action, he said: "I don't know. How can I know? They have the right to call me back anytime."
Police later said that Lai had been arrested for organising and participating in an "unauthorised assembly" and had been released after refusing police bail.
"Police reserve the right for prosecution... At this stage (there are) no court proceedings," a police spokeswoman told AFP.
Both Chow and Wong questioned the process, saying police should charge them if they had the evidence.
"If they have enough evidence, for sure... They can lay the charges," Chow said after his release Sunday.
"I can't think of any other reason (for the arrests) other than creating white terror or a politically motivated one," he said.
Wong said Friday police had told him the investigation was still ongoing.
Lai was a regular visitor to the protest camps and was arrested during the police clearance of the main Admiralty site.