After the discovery of the notebook in August, Nizamdeen was wrongly accused of planning a potential attack involving Sydney landmarks and plotting to kill former prime minister Malcolm Turnbull and his former deputy Julie Bishop.
Usman Khawaja was spotted at Australian cricket team training, while his brother is in custody at Parramatta Police station.
A police source has confirmed the brother of the Australian cricket star is now being questioned by detectives in relation to the alleged attempt to pervert justice, and forgery, by making a false document. "Motivated, in part, by a personal grievance", New South Wales assistant commissioner Mick Willing told reporters.
It led to the arrest and charging of a 25-year-old Sri Lankan postgraduate student, Mohamed Kamer Nizamdeen, with terrorism offences.
Arsalan Khawaja, 39, faces charges of forgery and attempting to pervert justice over a notebook obtained by police which is alleged to have contained fabricated plans to carry out terrorist attacks in Australia.
"What we will be alleging is that he (Nizamdeen) was set up in a planned and calculated manner".
Nizamdeen was eventually released in September, when police figured out the script did not match his handwriting.
"We have no information to suggest that there is any ongoing threat to the community arising from our inquiries into the matter". "In fact, we have offered and have paid for his court costs in relation to it".
In October, counter-terrorism police questioned Khawaja, who was reportedly employed alongside Nizamdeen, and later searched his Westmead home.
Usman Khawaja is expected to line up for Australia in the first Test against India, starting in Adelaide on Thursday.
Australian police now say they "regret" arresting Sri Lankan-born Nizamdeen.
"This is a matter for police to deal with".
"I just ask for you to please respect my privacy and my family's privacy at this time".
"Out of respect for the process, it'd be inappropriate for me to be making any further comment".