The discovery of the orange backpack sparked a large police operation during Saturday’s Street Parade, which was attended by around 850,000 people.
A bomb disposal robot was used to examine the suspicious bag.
In a statement on Monday morning, Zurich cantonal police said a 31-year-old German man living in canton Aargau had been identified as the possible owner of the backpack and arrested.
The bag contained what “looked like a fully functional pipe bomb”, investigators told Swiss media.
Police are still investigating the suspect’s motives for placing the fake bomb at the event. It is not being treated as a terrorist act.
A 35-year-old Swiss man was originally arrested in connection with the incident but has now been released.
A total of 78 people from 21 countries were arrested during this year’s Street Parade. Most arrests came after fights between people who had consumed large quantities of drugs or alcohol.