BBC correspondent Paul Wood says Mr Krajisnik may have thought he was safe from prosecution since he was not officially part of the chain of command at the time when atrocities were being committed against Bosnian Muslims.
Witnesses said French soldiers with the Nato-led peacekeeping force blew down the door of his house in Pale, south-east of Sarajevo, with explosives.
Mr Krajisnik, an ally of the notorious former Bosnian Serb leader Radovan Karadzic, will be sent to The Hague for trial by the UN war crimes tribunal, officials said.
Mr Krajisnik, speaker of the Bosnian Serb parliament during the 1992-95 war, was arrested under a secret indictment.
BBC correspondent Paul Wood says Mr Krajisnik may have thought he was safe from prosecution since he was not officially part of the chain of command at the time when atrocities were being committed against Bosnian Muslims.
But he is said to have exerted considerable influence over the Bosnian Serb leadership in the later stages of the war.
A Nato statement says Mr Krajisnik "is accused of genocide, crimes against humanity, violations of the laws and customs of war and grave breaches of the Geneva Convention including murder, wilful killing, extermination, complicity in genocide, deportation and inhumane acts."
After the war ended in 1995, he served as the Serb representative on the three-member Bosnian presidency, along with a Croat and a Muslim.
The UN's chief war crimes prosecutor, Carla del Ponte, welcomed the arrest and said the international community should "insist on the apprehension and surrender of all other indicted accused."
"In particular, the prosecutor calls for the apprehension of Radovan Karadzic who should stand trial jointly with the accused Momcilo Krajisnik," a statement from Ms del Ponte's office said.
Mladic 'in Belgrade'
Another wanted Bosnian Serb military leader is meanwhile reported to have been seen at a football match in Belgrade.
General Ratko Mladic - believed to be behind the killing of 7,000 people at Srebrenica in 1995 - is said to have attended a match between the Yugoslav and Chinese national teams in the Yugoslav capital on Tuesday.
There are reports that General Mladic has moved to Belgrade from his home region of Pale in Bosnia.