The 45-year-old hardliner was arrested from his home in Habbakadal area of the city early this morning.
Masarat, who was himself seen chanting slogans in support of Pakistan, besides Hurriyat Conference chairman Syed Ali Shah Geelani, had been placed under house arrest in Srinagar last night.
"Bhat has been arrested in the case registered in police station Budgam in connection with the provocative actions during the rally on Wednesday," a senior police officer said.
The arrest came hours ahead of Hurriyat's planned march to Tral area of Pulwama district where two youths had been killed in an army operation. Locals have alleged the two were killed in a staged encounter, while the army insisted they were milintants shot down in a gunbattle.
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Meanwhile, pitched battles were fought on the streets of Srinagar this afternoon when supporters of the Hurriyat Conference clashed with police resulting in injury to about a dozen people, including two policemen.
Young men with clothes wrapped on their faces were seen hurling stones at the police who fired teargas shells to break up the march.
As Srinagar was on the boil, the Centre said it was keeping a close watch on the situation and asserted there will be "zero tolerance" to militancy and separatism.