Abdeslam, who has been on the run since the November 13th, described as the most wanted man in Europe, was arrested during a raid by armed police on a flat in the Molenbeek neighbourhood of Brussels.
On Friday evening he officially confirmed his identity to Belgian police.
Belgian police arrested five people in total in the counter-terror raids in Brussels on Friday, including the family who sheltered Abdeslam, prosecutors said. Thierry Werts, a spokesperson for the prosecutor's office said Abdeslam had been taken to the hospital for treatment, following earlier reports that he had been shot in the leg by police.
"We got him" said Belgian Minister Theo Franken when news of the arrest of the man said to be the tenth, and last surviving member of the jihadist commando cells who carried out the worst ever terror attack on French soil. US President Obama called the French and Belgian leaders to congratulate them on capturing the terrorist, AFP said.
The Franco-Moroccan is believed to be the last surviving member of the 10-strong commando team that carried out the worst ever terror attack on French soil.
"We realize that there were many more people [involved in the attacks] than we at first thought," Hollande told a press conference in Brussels with Belgian Prime Minister Charles Michel to announce details of the arrest. Hollande also said that he expected the extradition of Abdeslam "as quickly as possible".
He is thought to have fled to Brussels the day after the gun and bombing rampage on Paris nightspots after refusing to blow himself up. Earlier this week, Belgian and French police raided an apartment in the
Forest district of Brussels, shooting dead a 35-year-old Algerian identified as Mohamed Belkaid, who was living illegally in Belgium.
Werts said police were trying to determine whether Abdeslam and the other man arrested with him were the two who fled the raid in Forest. "It's a theory," he added.
His capture came just a day after his brother Brahim, who blew himself up in the massacre, was buried in a discreet ceremony on Thursday in Brussels.
A witness told AFP the operation began at around 1530 GMT when dozens of police cars swooped into the gritty Molenbeek neighbourhood of the Belgian capital.
"I heard about three or four shots fired, but they were muffled as if taking place indoors," said Karim, an Oxfam charity employee who lives in Molenbeek.
French police sources later confirmed to AFP that Salah Abdeslam, the man believed to have played a key logistical role in organising the devastating Paris attacks, had suffered a leg wound.
Abdeslam was believed to have been treated for injuries by paramedics, but this has not been confirmed officially.
Reports say Police shot Abdeslam in the leg to immobilise him after he refused to follow their orders despite repeated requests.
An RTLInfo correspondent on the scene said: "It happened very, very quickly," as he described multiple shots being fired and seeing a man shot and fall to the ground. "It was very shocking to see," he said, explaining that the street was busy and there had been "panic".
The arrest came hours after prosecutors revealed that Abdeslam's fingerprints were found in an apartment in another part of Brussels earlier this week following a raid in which a suspected IS militant was killed.
Hollande did not confirm the arrest of Abdeslam when he made a statement, saying: "Let the Belgian police do their work."
The French president did say that it was "a key moment", before meeting with the Belgian PM Charles Michel.
Belgian Minister Theo Francken later tweeted out the words "We've got him".
Three police operations were still believed to be underway in Brussels on Friday evening, with unconfirmed reports at least one gunman was still holed up in a flat in the Molenbeek area, where Abdeslam was arrested.
There were also reports that an unknown man fled the scene during the police raid and police fired on him in the street. It is not clear whether he got away or he was arrested.
Abdeslam's arrest, just over four months after the terror attacks in Paris that left 130 dead, came a day after his brother Brahim, who blew himself up in the massacre, was buried in a discreet ceremony in Brussels.
Another of the Paris attackers, Bilal Hadfi, was buried quietly in the same cemetery in the northwest of the city last week.
He is expected to be extradited to France at some in the near future.
The prosecutor's office said earlier that police had found Abdeslam's fingerprints in an apartment in the Forest district of Brussels which was raided Tuesday.
Belgian Prime Minister Charles Michel was seen hurriedly leaving an EU summit on migrants in Brussels, talking on his mobile phone as he got into his car surrounded by security men.
Abdeslam's fingerprints and DNA found
"A police operation is underway in Molenbeek," the Belga state news agency reported, citing the federal prosecutor's office.
Prosecutors in Belgium confirmed earlier on Friday that DNA and fingerprints belonging to wanted Paris attacks suspect Salah Abdeslam were found in the Brussels flat where a shoot-out between police and gunmen took place this week.
The DNA and fingerprint traces were picked up during forensic examinations of the flat in the Forest area of Brussels where a shoot-out erupted during a police raid on Tuesday.
"We can confirm that fingerprints of Salah Abdeslam were found in the apartment in (the Brussels district of) Forest," spokesman for federal prosecutors Eric Van Der Sypt told AFP, refusing to add further details.
Reports say his DNA was found on a glass in the apartment.
Investigators are trying to determine whether the traces of Abdeslam - the chief suspect in the Paris terror attacks, who remains at large, are old or recent.
(Belgian police with weapons drawn during Tuesday's raid. AFP)
Police said Tuesday's routine raid was not directly linked to the search for the wanted Abdeslam, but there are strong suggestions now that he may have been one of the two men to have escaped from the flat when the shooting erupted, meaning he slipped through the hands of Belgian police once again.
Belgium's RTBF television station, citing unidentified sources, said it was "more than likely" that Abdeslam was one of the two suspects who fled the Forest apartment but Belgian authorities refused comment on that issue.
Tuesday's raid was carried out by a jointly team of French and Belgian police. They thought the flat was empty but were met with a hail of bullets on opening the door.
Four officers including one French policewoman were injured. One gunman, an Algerian national named Mohamed Belkaid, was killed. He was found with an Is flag, extremist material and a Kalashnikov.
News of Tuesday's shoot-out quickly gained worldwide media attention as speculation grew that the raid was targeting Abdeslam, 26, who is believed to have played a major logistical role in organizing the attacks.
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Abdeslam is believed to have dropped the three suicide bombers at the Stade de France, before dumping his car in the 18th arrondissement.
He then fled to Brussels in a friend's car hours after the carnage on November 13th.
It later emerged that he was stopped three times by police on his way back to Belgium the night of the attacks, but on each occasion police let him travel on.
Abdeslam, dubed Europe's most wanted man, was reportedly holed up for three weeks after the Paris attacks in an apartment in the Schaerbeek district in north Brussels, where police found a fingerprint, traces of explosives and possible suicide belts.
But since then the trace has gone cold.
With Abdeslam's presence in the Forest flat confirmed, investigators will try to determine whether he stayed there while he prepared for the Paris attacks, or whether he took refuge there afterwards.
However reports in France suggest the flat was rented by the occupants after the November attacks.
Prosecutors also said that the man killed in the Forest shootout was very likely a suspect wanted by police in connection with the Paris attacks.
Investigations show that "the so-called Samir Bouzir, against whom a wanted notice was issued, most probably is the Algerian national Mohamed Belkaid" killed on Tuesday, a statement said.
All photos: AFP