Father Joseph George, hailing from Kollam, was rescued when his family members, as advised by police, were about to hand over the cash to the gang members at Devarsolai in Gudalur, about 50 km from here.
The gang of eight led by Asaithambi, said to be members of a little known political outfit Makkal Tamil Desam, had kept a watch on the priest since his arrival here May 27, they said.
They then contacted the relatives of George and sought Rs 10 lakh as ransom for his release, police said.
On information from the relatives to senior police officials, two special teams were formed to probe the case, they said.
As planned, the relatives agreed to pay the money and came to Devarsolai. When they were about hand over the money, police immediately nabbed the gang members and rescued George safely.
According to police, Asaithambi is reportedly involved in the murder of an AIADMK councilor some time ago.