She was kidnapped as she walked to her grandparents' home in Kingston Gorse, after leaving her brothers and sister playing in a field nearby.
Roy Whiting, a mechanic from Littlehampton, West Sussex, was interviewed twice in the early stages of the investigation. He was taken into custody from an address in Kent just after 0900 GMT on Tuesday morning.
He has been taken to Bognor Regis police station in West Sussex.
Eight-year-old Sarah's body was found in a field near Pulborough, West Sussex, two weeks after she disappeared on 1 July.
She was kidnapped as she walked to her grandparents' home in Kingston Gorse, after leaving her brothers and sister playing in a field nearby.
Detective Superintendent Peter Kennett, who is leading the inquiry, said: "A man has been arrested early this morning, and has been brought to Bognor police station where he will be interviewed.
"He is a local man and I can confirm that it is the same man that we have arrested on two previous occasions."
He said Sarah's parents, Michael and Sara Payne, "have been kept fully informed of the investigation and are aware of the arrest".
Det Supt Kennett said police would consider pressing charges after the man has been interviewed, but gave no indication of how long the questioning would take.
Mr Whiting, a divorcee who has one child, lived in Littlehampton at the time of Sarah's death and was first arrested 24 hours after she disappeared.
He was arrested for a second time on 31 July last year.
Crimewatch leads
During the huge investigation into Sarah's murder, which has cost more than £1m, hundreds of samples of DNA evidence were taken, the results of which police are now beginning to receive.
Several new leads have also emerged following a fresh appeal for information screened on last month's BBC Crimewatch UK programme.
Police received 270 calls after the programme in which they showed a distinctive clown-patterned curtain.
On the programme Detective Superintendent Jeremy Paine, head of Sussex CID, said: "This (curtain) may prove to be the vital piece of evidence helping to convict Sarah's killer."
BBC crime correspondent Stephen Cape said it was clear the broadcast had played a significant role in the investigation.
"The small piece of curtain material, according to detectives, is vital evidence and they have new significant leads as a result of that broadcast."