Miguel Angel Muñoz Blas, a 39-year-old man was remanded into custody by a judge on Monday, accused of the murder of a 41-year-old pilgrim from Arizona.
Police were investigating whether Muñoz had used tactics including the painting of yellow arrows to divert walkers off the pilgrimage route toward his remote farm.
Yellow arrows are used along the length of the Way of Saint James to help mark the pilgrimage route and point the way to Santiago de Compostela.
The suspect is thought to have spray-painted yellow arrows directing people off the official route and down a parallel track that led to his home 800 metres away near the village of Castrillo de los Polvazares in the region of Castilla y Leon, according to a report in the local paper Diario de Leon.
Other reports claimed that police had become suspicious after other pilgrims reported being harassed by a man of his description in that area.
Thiem went missing from the famous pilgrimage route in April near the town of Astorga. A decomposed body was discovered on Friday on property belonging to Muñoz and police say they believe it is that of Thiem, although they are awaiting DNA tests for confirmation.
According to police sources, Muñoz was one of the early suspects and had been under observation in the hope that he might incriminate himself and lead investigators to her body.
He had first been interviewed by police shortly after she went missing after it emerged that he had exchanged $1,000 just a day after she was last seen.
Police announced last week that they would renew the search for the missing woman and would deploy dogs and helicopters as well as a 300-strong team of police to carry out intensive searches of the area where she was last seen.
The suspect reportedly fled and on Friday he was arrested in a bar 160km away in the town of Grandes de Salime in the neighbouring region of Asturias.
Later that day, decomposed human remains were discovered on his land, with reports that he had confessed to the crime and revealed where he had hidden the body.
Locals described the suspect as a "recluse" who had moved to the area from Madrid three years ago and said that he lived in a wooden shack on the property, according to a report in 20 Minutos.
The family of Thiem, who lived in Phoenix, Arizona, will arrive in Spain on Tuesday and attend a funeral mass for the victim in the cathedral of Santiago de Compestela, the final destination of those walking the pilgrimage route.
Denise Thiem disappeared on the Camino de Santiago on April 5th. Photo issued by Thiem Family