Ashok Sahu, a member of the main opposition Bharatiya Janata Party (BJP), was charged with promoting hostility between communities during an election meeting in Kandhamal district, the centre of violence that erupted in August.
His arrest is a further embarrassment to the BJP, which has been accused of whipping up inter-faith tensions during campaigning.
One high-profile BJP candidate, Varun Gandhi -- a scion of the Nehru-Gandhi political dynasty -- was jailed after threatening to cut off the hands of anyone who dared harm India's majority Hindus.
In his speech on April 5, Sahu, a former police officer, allegedly justified last year's riots in Orissa in which Christian groups say more than 100 people were massacred by rampaging Hindu mobs.
The riots were sparked by the murder of a revered Hindu holy man, whose killing was blamed on Christians.
"Who killed Swamiji? Did he not know that there would be dire consequences for such an act? If I say it too often, I am accused of being communal and blamed for spreading communal hatred," Sahu reportedly told supporters.
Sahu, who is the BJP's candidate for the Kandhamal constituency, was detained at Phulbani town, 220 kilometres (140 miles) from the state capital Bhubaneshwar, Pravin Kumar, police superintendent of the area said.
Orissa goes to the polls in two phases on April 16 and 23 as part of India's mammoth five-stage national elections slated to end on May 13.
Thousands of Christians still live in state-run relief camps after Hindu mobs burned their houses, churches, orphanages and schools in the impoverished state.