Frank Burgon from English coastal town of Hartlepool was wanted on charges of rape, attempted rape and assault.
The 76-year-old fled the UK after a bail hearing in 2012 and has since been travelling on his brother's passport.
But Burgon was arrested on Thursday after he was recognized by a neighbour in the Puerto Rico area of Gran Canaria, local daily Diario de Avisos reported.
He is now expected to face identity charges in Spain before extradition to the UK.
"When we arrested Burgon, he claimed at first we'd got the wrong man and insisted he was his brother Stanley," Spain's Civil Guard told UK paper the Daily Mail.
"He only admitted the truth when we warned him we'd be doing fingerprint tests and checking him for body tattoos we'd been told he has."
In November, the UK's Crimestoppers and National Crime Agency released the names and photographs of 13 high profile criminal suspects believed to be hiding in Spain.
Three of those 13 have now been arrested, with one, Michael McCartney, being arrested within hours of the campaign launch.
People with information about wanted UK criminals in Spain can use a special freephone Spanish 900 555 111 telephone number which will be answered in the UK by Crimestoppers’ call agents and a translation service is available upon request.
People can also pass on information anonymously via the Crimestoppers number 0800 555 111 or online at www.crimestoppers-uk.org.