It was a dramatic escalation in an ongoing crackdown on the opposition and dissenting voices in Turkey.
The state-run Anadolu Agency said prosecutors issued detention warrants for the mayor, Ekrem Imamoglu, and about 100 other people.
Among those detained on Wednesday was Imamoglu's close aide, Murat Ongun.
Authorities also closed several roads around Istanbul and banned demonstrations in the city for four days in an apparent effort to prevent protests following the arrest.
Private NTV television said two Istanbul district mayors were among those detained.
Critics say the crackdown follows significant losses by Erdogan's ruling party in local elections in 2024 amid growing calls for early national elections.
Government officials insist the courts operate independently and reject claims that legal actions against opposition figures are politically motivated.
"We are facing great tyranny, but I want you to know that I will not be discouraged," Imamoglu said earlier in the day in a video post on social media.
Erdogan, a populist with increasingly authoritarian tendencies, has led Turkey as prime minister or president for more than 20 years and is the longest-serving leader in the Turkish republic's history.
His current term runs until 2028 but he has indicated he would like to serve longer, something he could achieve with the help of a friendly parliament.
Imamoglu was arrested as police searched his home on Wednesday morning.
The Istanbul Stock Exchange's main index dropped by seven per cent over news of his arrest, triggering a temporary halt to trading, and the lira lost some seven per cent of its value against the dollar.
Anadolu, the news agency, said Imamoglu and several others were suspected of extortion, money laundering and irregularities concerning tenders and procurements, among other crimes.
Imamoglu was also suspected of aiding the outlawed Kurdistan Workers' Party - which is designated a terrorist organisation by Ankara - by allegedly forming an alliance with a Kurdish umbrella organisation for the Istanbul municipal elections.
A day earlier, Istanbul University invalidated Imamoglu's diploma, in effect disqualifying him from running in the next presidential race - a university degree is a requisite for running in elections under Turkish law.
The mayor's party - the main opposition Republican People's Party, or CHP - was to hold a primary on Sunday where Imamoglu was expected to be chosen as its presidential candidate.
With all the arrests Wednesday, that vote was in doubt but party chairman Ozgur Ozel told the opposition-aligned Halik TV channel that it would go ahead as planned.
Ozel said Imamoglu's detention was "an attempted coup against our next president".
In a social media post in English, Imamoglu said: "The will of the people cannot be silenced through intimidation or unlawful acts. I stand resolute, entrusting myself not only to the 16 million residents of Istanbul but to the 86 million citizens" of Turkey.
Separately, police also detained a prominent investigative journalist, Ismail Saymaz, for questioning, the opposition-aligned Halk TV reported.
Meanwhile, internet-access advocacy group netblocks.org reported Wednesday that access has been restricted in Turkey to popular social media platforms.
Imamoglu faces multiple lawsuits, including allegations of trying to influence a judicial expert investigating opposition-led municipalities.
The cases could result in prison sentences and a political ban.
He is also appealing a 2022 conviction of insulting members of Turkey's Supreme Electoral Council, a case that could result in a political ban.
Imamoglu was elected mayor of Istanbul in 2019 in a historic blow to Erdogan and the president's Justice and Development Party, which had controlled Istanbul for a quarter of a century.
The party pushed to void the results in the city of 16 million, alleging irregularities, but Imamoglu won a repeat of the election a few months later.
