Excited onlookers watch a motorcade said to be carrying Mr Milosevic

Mr Milosevic is wanted on war crimes charges by The Hague tribunal, but the Yugoslav Government has so far been unwilling to take action against him.

It is not clear what charges he might face in Yugoslavia, but he has been investigated for a range of alleged offences including smuggling state assets and involvement in assassinations.

Reporters in central Belgrade saw a convoy of jeeps, including two with darkened windows, enter the Palace of Justice building late on Friday night, and there was speculation that Mr Milosevic was inside.

We can only hope that this is the first step towards bringing him to justice

Spokesman for UN Secretary-General Kofi Annan

The developments come a day before a US deadline for the government to detain the former president or risk losing American economic assistance and loans from the International Monetary Fund and the World Bank.

Eight of Mr Milosevic's aides - including his party deputy and a senior secret police official - were arrested earlier this week in an apparent show of resolve by the authorities.

Armed

Local media reports said that the police had spent time inside Mr Milosevic's villa, negotiating his peaceful surrender, while his supporters were demonstrating outside.

The ex-president will not be tried outside Yugoslavia, the authorities say

No one in the crowd outside has seen Mr Milosevic leave, and some of his aides are saying that he has not in fact been arrested.

Zivorad Igic, a senior member of Milosevic's Socialist Party (SPS), told reporters by phone that he was inside the villa, with Mr Milosevic.

He denied reports that he had been arrested, and said the former president was talking to the Russian politician, Nikolai Ryzhkov.

Another report said that he was seen outside his house after midnight (2200GMT), later than the time he was presumed to have been taken to the centre of the city.

As the events in Belgrade were reported, a number of international leaders welcomed the news that action was being taken against Mr Milosevic.

"We have seen the news reports from Belgrade saying that Milosevic has been arrested and we can only hope that this is the first step towards bringing him to justice," said a spokesman for UN Secretary-General Kofi Annan.

Fear of bloodshed

Local media reported earlier on Friday that an arrest warrant had been issued, but that the police were afraid to take action for fear of bloodshed.

Milosevic supporters kept up a vigil all evening

But earlier on Friday Yugoslav Interior Minister Zoran Zivkovic said that Belgrade would not accede to tomorrow's US deadline for extraditing Mr Milosevic to International Criminal Tribunal for the Former Yugoslavia (ICTY).

Speaking on Serbian radio, Mr Zivkovic said: "There are currently no legal conditions for his extradition, and this is clear."

A police official, speaking on condition of anonymity, said that Serbia's State Security had attempted to replace Mr Milosevic's bodyguards on Friday, but that the former president had refused to accept the change.

Yugoslavia has pledged to try Mr Milosevic in the country, rather than handing him over to the ICTY.

At present, Yugoslav law prevents the extradition of its nationals to a foreign country.

Parliament is preparing a new law that would allow Mr Milosevic to be extradited, but it is not expected to be enacted for another month.