The diplomat was one of at least two people shot dead on Wednesday when a gunman opened fire in a restaurant where Turkish diplomats were dining.
"The Kurdistan Region announced on Saturday the arrest of the man who planned the assassination of a Turkish diplomat in a restaurant in Erbil, less than a week after the attack," the Asayish internal security service said in a statement.
It did not name the suspect but said "reports indicated" that his sister served as a Kurdish lawmaker in the Turkish parliament. A separate statement from another Iraqi Kurdish security force, the Counter Terrorism Department, gave the suspect's name as Mazlum Dag.
Turkey's pro-Kurdish People's Democratic Party (HDP) later confirmed that the man who had been arrested was the brother of one of its lawmakers, Dersim Dag.
It said it strongly condemned the attack on the diplomat, and said "using the attack as a reason to make one of our lawmakers a target through the name of her brother is a provocation and unacceptable."
Political violence is comparatively rare in Erbil, capital of Iraq's semi-autonomous northern Kurdish region, which has been spared the civil war and ethnic strife that hit the rest of Iraq since the U.S.-led invasion of 2003.
The shooter fled in a car driven by an accomplice, two Kurdish security officials and a witness said.
The attack took place weeks after Turkey launched a new military offensive against Kurdish separatist militants based in northern Iraq.
Ankara's main enemy in Iraq is the PKK group, which has based fighters in the mountainous border region, north of Erbil, during a decades-long insurgency in southeastern Turkey.Turkey and the ruling Kurdish party in Erbil, the KDP, have blamed the PKK for other Turkey-related incidents in northern Iraq including the storming of a Turkish military camp earlier this year.