Paterson, nicknamed Buff and Billy, was wanted over the 2010 death of Kevin 'Gerbil' Carroll in a supermarket car park in Glasgow.
The 34-year-old fled to Spain after that crime where he remained in hiding until his arrest, Spain's El Diario newspaper reported on Thursday.
Paterson appeared on a ten most wanted crime list released by the UK's Serious Organised Crime Agency and Crimestoppers as part of a campaign known as Operation Captura.
This campaign targets criminals that UK authorities believe are on the run in Spain.
The latest wave of the campaign — Unlucky 13 — called for public help to track down 13 wanted criminals. Nine of those have now been arrested, with five of those arrests being carried out in Spain.
People with information calling from 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.