Lai, 71, has been one of the most prominent democracy activists in the Chinese-ruled city and an ardent critic of Beijing, which imposed the sweeping new law on Hong Kong on June 30, drawing condemnation from Western countries.

His arrest comes amid Beijing's crackdown against pro-democracy opposition in the city and further stokes concerns about media and other freedoms promised to the former British colony when it returned to China in 1997.

It "bears out the worst fears that Hong Kong's National Security Law would be used to suppress critical pro-democracy opinion and restrict press freedom," said Steven Butler, the Committee to Protect Journalists' Asia program coordinator. "Jimmy Lai should be released at once and any charges dropped."

Ryan Law, Apple Daily's chief editor, told Reuters the paper would not intimidated by the raid.

"Business as usual," he said.

The new security law punishes anything China considers subversion, secession, terrorism and collusion with foreign forces with up to life in prison. Critics say it crushes freedoms, while supporters say it will bring stability after prolonged pro-democracy protests last year.

Lai had been a frequent visitor to Washington, where he has met senior officials, including Secretary of State Mike Pompeo, to rally support for Hong Kong democracy, prompting Beijing to label him a "traitor".

Hong Kong police said they had arrested seven men, aged 39-72, on suspicion of breaching the new security law, without naming them, adding that further arrests were possible.

Apple Daily, which posted on its Facebook page a livestream of dozens of police officers roaming through its newsroom and rifling through files, reported Lai was taken away from his home early on Monday.

Lai himself was brought back to the office later, initially in handcuffs.

"We can't worry that much, we can only go with the flow," Lai said, before being escorted into a police vehicle.

Apple Daily reported one of Lai's sons, Ian, was also arrested at his home and later showed his restaurant, Cafe Seasons, being raided by police.

Shares of media company Next Digital, which publishes Apple Daily, plunged 16.7 per cent before rebounding to trade 300 per cent higher. Some on Facebook posted screenshots of purchases saying they bought to show support for Lai.

An Apple Daily source said that other senior executives in the company were among those targeted and they were hiring lawyers. Next Digital Executive Director Cheung Kim-hung was seen escorted by police out of the building.

"We see this as straight harassment," the source said, adding that Lai was arrested on suspicion of sedition, criminal fraud and colluding with foreign forces.

Hong Kong Journalists Association chairman Chris Yeung said the search was "horrible."

"I think somewhere in third-world countries there has been such kind of press freedom suppression; I just didn't expect it in Hong Kong."

Taiwan Premier Su Tseng-chang said "China should not treat Hong Kong this way."

In a Reuters interview in May, Lai pledged to stay in Hong Kong and continue to fight for democracy.

Australian Associated Press