The 24-year-old man is being investigated on charges relating to national security and terrorism, police spokesman Andreas Angelides said. He said the man was arrested last week in the coastal town of Limassol, and the court had ordered him to be detained to assist police in their investigation.
Angelides would not identify the suspect, the level of his involvement in the attack, the intended target or if he had any accomplices.
But state CyBC radio reported the suspect is a Swedish passport holder of Lebanese origin and that documents and photographs were found in his possession detailing movements of Israelis on the island.
Israeli Prime Minister Benjamin Netanyahu blamed Iran.
"After Iran sent its people to assassinate the Saudi Ambassador on U.S. soil at the Saudi Embassy, and carry out attacks in Azerbaijan, Tbilisi, New Delhi and Africa, now it has been exposed that it intended to commit a terror attack on Cyprus soil," Netanyahu said in a statement.
"The international community must fight against the biggest exporter of terror in the world."
Netanyahu provided no proof to support his allegations, and Israeli officials could not be reached for comment.
Israel and Iran are bitter enemies. Israel considers Iran a threat to its existence because of its nuclear and missile development programs, frequent reference to Israel's destruction by Iranian leaders and Iran's support of violent groups in Lebanon and Gaza.