The ATS picked up another suspect for questioning.
Aftab Ali, who was picked up from Faizabad, is believed to have received training from the ISI in Pakistan and was in constant touch with officials in the Pakistan High Commission, IG ATS Aseem Arun told PTI.
He added that the ATS was in possession of strong evidence against him and deposits made in Aftab's bank accounts will also be verified.
The joint operation was conducted by the UP Anti-Terrorism Squad (ATS), Military Intelligence and UP Intelligence.
While Aftab was arrested, another suspect was taken into custody and was being questioned.
The UP ATS in a joint operation with Maharashtra ATS arrested Aftab's accomplice Altaf Qureishi from Mumbai. The investigators have seized cash, mobile phones and other things from him.
Aftab was allegedly keeping a close vigil on the movement of troops in the area, especially between Faizabad and Lucknow, besides deployment of battalions, PTI quoted an ATS release as saying.
Police said more inputs about the ISI racket will known after going through the accused's mobile phone. More arrests are likely to be made.
Aftab, who allegedly gathered information on army cantonment and other defence establishments, is believed to have received training from ISI in Pakistan.
He had contact with an official in the Pakistan High Commission and had also met him in New Delhi, Arun told the news agency.
"He was in constant touch with Pakistan High Commission," the ATS statement said.