Peter Mandelson's arrest for misconduct in public office was prompted by "baseless" claims he was planning to leave the country, his lawyers have said.
The former cabinet minister was arrested yesterday and later released on bail.
His law firm Mishcon de Reya said in a statement issued this evening: "Peter Mandelson was arrested yesterday despite an agreement with the police that he would attend an interview next month on a voluntary basis.
"The arrest was prompted by a baseless suggestion that he was planning to leave the country and take up permanent residence abroad.
"There is absolutely no truth whatsoever in any such suggestion. We have asked the MPS for the evidence relied upon to justify the arrest. Peter Mandelson's overriding priority is to cooperate with the police investigation, as he has done throughout this process, and to clear his name."
The Times reported that Mr Mandelson had told friends shortly after he was released.
He has been accused of passing sensitive information onto paedophile financier Jeffrey Epstein during his time as business secretary.
As part of the so-called Epstein files, emails from 2009 appear to show Mr Mandelson pass on an assessment by Gordon Brown’s adviser of potential policy measures including an "asset sales plan".
He also appeared to discuss a tax on bankers’ bonuses and confirm an imminent bailout package for the euro the day before it was announced in 2010.
The emails appeared to be sent to Epstein after he became a convicted sex offender.
The Metropolitan Police declined to comment beyond their statement issued just after 2am, which read: "A 72-year-old man arrested on suspicion of misconduct in public office has been released on bail pending further investigation."
The force said later he has been bailed to the end of May.
Mandelson returns home after being released on bail
Plans to release documents about Mr Mandelson's appointment as US ambassador have not been disrupted by the peer’s arrest on Monday, a Cabinet minister said.
Bridget Phillipson signalled the Government still plans to release documents about Mr Mandelson’s appointment in early March, a move announced in the House of Commons yesterday just before he was arrested at his London home.
Mr Mandelson was released on bail in the early hours of this morning after his arrest on suspicion of misconduct in public office.
The former Labour minister has been accused of passing on information to paedophile financier Jeffrey Epstein when he was business secretary.
Asked whether the Government still planned to go ahead with its plans to publish documents amid the police investigation, Education Secretary Ms Phillipson told Sky News: "My understanding is yes, but we do just need to be mindful of any documents we publish given the nature of the ongoing police investigation.
"So, we want to be transparent, we do want to push ahead with publishing documents, but we just need to make sure that nothing that’s published could compromise or call into question an ongoing police investigation."
Keir Starmer has faced considerable criticism over his decision to appoint Mr Mandelson to the position despite his links to Epstein, with Scottish Labour leader Anas Sarwar calling for him to resign.
The UK prime minister had admitted to knowing about Mr Mandelson's ongoing friendship with Epstein, but said he had "lied repeatedly" about the extent of the relationship when questioned on it.
Under pressure from Labour MPs and opposition parties, Mr Starmer agreed to release all the documents relating to the appointment.
The due diligence report by the Cabinet Office, given to Mr Starmer ahead of the appointment and largely based on public information about the peer’s ties to Epstein, is expected to be in the first tranche of documents to be released as soon as next week.
But the subsequent questions put to Mr Mandelson by the prime minister and his responses, which Mr Starmer has claimed included lies about the extent of his links to the paedophile, are expected to be withheld.
Asked about The Times’s report that the publication of that correspondence could be delayed until the police investigation and any potential criminal trial has concluded, Mr Starmer's spokesman declined to "speculate" on the timing of the release.
