An Australian man has been arrested over the “fake collar bomb” plot in which what was thought to be an explosive device was attached to the neck of a Sydney teenager.

Paul "Doug" Peters, a business man, was arrested at his ex-wife’s house in the small town of La Grange, north-east of Louisville, Kentucky, in the US.

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Peters is accused of chaining a “collar bomb” to the neck of 18-year-old Madeleine Pulver, the daughter of one of Sydney’s richest men, Bill Pulver.

On August 3, a man wearing a balaclava broke into the Pulver’s home in Sydney and strapped what he said was a bomb Madeleine’s neck, telling her it could be detonated remotely.

The man left behind a ransom note.

Although the device turned out to be a hoax, it took 10 hours for officials to remove it, as Madeleine’s parents waited tearfully outside the house.

Bomb technicians, negotiators and detectives spent frantic hours at the scene as neighbouring homes were evacuated, streets were closed and medical and fire crews waited nearby.

Peters is an Australian citizen but has lived previously in the US. Australian police are expected to seek his extradition back to his native country.

It appears that there may be links between Peters and the Pulver family.

David Hudson, the New South Wales (NSW) assistant police commissioner, said: "There are some links between the suspect and the family but no direct links and that is still a matter of investigation.”

According to the Sydney Daily Telegraph, Peters owns a home on Central Coast, north of Sydney, close to the Pulver family’s holiday house.

Peters reportedly became the key suspect after leaving Australia for the US on August 8.

Hudson said that officers were not looking for any other offenders in relation to the attack and attempted extortion.

"We will allege the suspect was responsible for entering the Pulver home and placing the device around Madeleine's neck," he said.

FBI special agent Elizabeth Fries said Peters will have an initial court appearance in Louisville on Tuesday.

Bill Pulver has expressed his relief at the arrest of his daughter’s attacker.

“On behalf of Maddie and the entire family, we are enormously relieved that an arrest has been made in the United States overnight," he said.

"This past two weeks has been a very difficult time for us and we are hopeful that this development marks the beginning of the end of this traumatic ordeal for our family.

"This has been a baffling and frightening experience. It has tested us all.

"Our priority as a family has been to provide a loving and supportive environment to Maddie, and try as best we can to get her life back to normal."