Taiwan TV showed Mr. Chen being led in handcuffs from a prosecutor's office to a courthouse-bound car, as police lined the streets. He raised his cuffed hands before getting into the car, yelling "Political persecution!" and "Go Taiwan!"
Late Tuesday night he was taken to a hospital and reportedly claimed to have been injured by police while in custody.
The detention of the defiant nationalist comes amid a warming trend in cross-strait relations under the current, China-friendly president Ma Ying-jeou. Last week China and Taiwan signed another raft of economic agreements during a visit by a top Chinese negotiator, though the visit was marred by violent anti-China protests here.
While Chen has not been charged with any crime, he is suspected of embezzling millions in public funds while he was president, and laundering that money by wiring it to foreign bank accounts. Two of his key aides and others have been detained without charge in the case, and his wife is also a suspect.
The ex-president has admitted that his wife wired $20 million to foreign bank accounts, but denies any wrongdoing. He claimed in an August press conference that the money was leftover campaign donations, that he didn't know about his wife's massive wire transfers until early this year, and that when he learned of the transfers he decided to donate all the money to further Taiwan's diplomacy.
That public defense does not sit well with many Taiwanese, even many former supporters in his own party.
"He's intentionally distorting and twisting everything, trying desperately to get support from some diehards at the expense of the DPP [the pro-independence party]," says Antonio Chiang, former head of the National Security Council in Chen's government. "He's destroyed the value of democracy and the significance of the Taiwan independence movement, and destroyed the dream of Taiwan for Taiwanese."
Chen, president from 2000 to 2008, is now unpopular with most Taiwanese. The bitterness against him runs especially deep among former supporters, who had high hopes for his presidency after decades of authoritarian rule by the Kuomintang, or Chinese Nationalist Party.
The island's pro-independence party is divided on how to deal with Chen, with critics wanting to draw a line between him and the party. But many party figures owe Chen for patronage and campaign funding, making it hard to cut him loose.
Chen made his name as an anticorruption crusader, taking on top Kuomintang figures during the early period of Taiwan's democratization. He rode to power in 2000 on a wave of Taiwan-first pride, winning support for his promise of cleaner government. But his tenure was marked by domestic gridlock, strained relations with China and the US, and a string of corruption scandals.
Chen's own legal woes began with allegations that he embezzled money from a special fund designated for Taiwan's diplomacy. But as a president he was immune from prosecution.
He was named as a suspect on May 20, the day he stepped down from office. The probe led to allegations of far more serious graft, involving millions of dollars moved through a complicated array of foreign accounts and shell companies. Prosecutors have focused on possible kickbacks or bribes during the government-led privatization of some of Taiwan's state-run banks, which sparked fierce competition among prospective buyers.
The legal push against him has stirred criticism of Taiwan's legal system – particularly prosecutors' right to hold suspects for up to four months without charge. Nine pro-independence party figures are currently in such detention, according to local press reports, which has fueled charges of a political witch-hunt.
Mr. Chiang say the detentions point to the need for legal reform in Taiwan. "Our rule of law still has a long way to go," says Chiang. "The legal process is not well respected in some cases."
The Ma government insists it is not interfering with judicial proceedings, and prosecutors argue the detentions are necessary to prevent collusion between suspects.
[Editor's note: The original headline misstated the action taken against Chen Shui-bian.]