The arrest comes amid fears that the use of Chinese telecommunications equipment in the West could provide avenues for spying.
The global chief financial officer of Chinese phone firm Huawei is facing extradition to the US after being arrested in Canada.
Meng Wanzhou, who is the daughter of company founder Ren Zhengfei, has been detained in Vancouver in relation to suspected violations by Huawei of US sanctions placed on Iran.
Huawei is one of the largest makers of telecommunications network equipment in the world and is thought to have been shipping products from America to the Middle Eastern country since at least 2016.
The firm has confirmed the arrest of Ms Meng, which happened on 1 December, but said it was “not aware of any wrongdoing” by its CFO, who will appear in court for a bail hearing on Friday.
The Chinese embassy in Ottawa has called for her immediate release.
It said in a statement: “The Chinese side firmly opposes and strongly protests over such kind of actions which seriously harmed the human rights of the victim.
“The Chinese side has lodged stern representations with the US and Canadian side, and urged them to immediately correct the wrongdoing and restore the personal freedom of Ms Meng Wanzhou.”
News of the arrest came on the same day that BT announced it would be removing Huawei-manufactured equipment from its 3G and 4G mobile networks.
Western countries have become increasingly wary of working with Huawei over fears it could provide the Chinese government with avenues for espionage.
Australia barred Huawei from providing 5G technology for its wireless networks over the summer and New Zealand followed suit in November.
In October, former security minister Admiral Lord West told Sky News that allowing Chinese companies to play a role in the introduction of 5G in the UK could compromise our critical data infrastructure.
Despite being completely locked out of the US, Huawei surpassed Apple earlier this year to become the number two smartphone maker in the world – only behind Samsung.
It has been helped by securing an increased share of the UK market, with TechRadar reporting that its acclaimed P20 handset had contributed to a rise from 2.7% to 13.7% in the three months leading up to July 2018.
The arrest of Ms Meng last week happened as Chinese President Xi Jinping dined with Donald Trump during the G20 summit in Buenos Aires.
Mr Xi and Mr Trump agreed a 90-day trade truce during the event and are set to begin negotiations to end their ongoing trade war, but the arrest of a top executive at a major Chinese company seems likely to re-escalate tensions between the countries.