Wallis has been arrested as part of the Scotland Yard investigation into phone hacking, Operation Weeting.
Wallis joined Alan Edwards' Outside Organisation in October 2009 as a senior consultant.
He was previously deputy editor of the News of the World in 2003 under editor Andy Coulson and became the paper's executive editor in 2007. Prior to this he worked as deputy editor of The Sun and editor of The People.
Wallis is understood to have been released on bail until October.
A Scotland Yard statement read: 'At 6.30am this morning officers from the Metropolitan Police Service Operation Weeting team arrested a 60-year-old man at a residential address in London on suspicion of conspiring to intercept communications, contrary to section 1(1) Criminal Law Act 1977.
'The man is currently in custody at a west London police station.'
Wallis is no longer listed as the agency's MD on Outside Organisation's website. Instead, the site states: 'Neil became a freelance media consultant to Outside in 2009.'
Outside's website has also deleted a portion of Wallis' biography that read: 'What he [Wallis] doesn’t know about journalism and media isn’t worth knowing.'
Outside was unavailable for immediate comment.
UPDATE: Chamy Media, owned by Neil Wallis, was contracted to provide strategic communication advice and support to the Metropolitan Police after he left the News of the World, it has emerged.
His work included advice on speech writing and PR activity while the Met's deputy director of public affairs was on extended sick leave.
A Met Police statement read: 'In line with MPS/MPA procurement procedures, three relevant companies were invited to provide costings for this service on the basis of two days per month. Chamy Media were appointed as they were significantly cheaper than the others. The contract ran from October 2009 until September 2010, when it was terminated by mutual consent.
'The Commissioner has made the Chair of the police authority aware of this contract.'