Reaz Qadir Khan, 48, was arrested at his home and charged with one count of conspiracy to provide material support to terrorists, U.S. Attorney Amanda Marshall said. He pleaded not guilty later in the day in federal court, The Oregonian reported.
Khan is a wastewater treatment plant operator for the city of Portland.
The arrest "brings home the reality that worldwide headlines can resonate right here in Portland," Mayor Charlie Hales said in a statement. The mayor urged people to remember that charges are only allegations and that Khan is presumed innocent until proven otherwise.
Khan was jailed pending a detention hearing scheduled for Wednesday afternoon.
If convicted, Khan faces a potential sentence of life in prison.
An indictment unsealed Tuesday alleges the naturalized U.S. citizen provided advice and financial help to Ali Jaleel, one of three people who carried out the attack at Pakistan's intelligence headquarters in Lahore.
Jaleel died in the attack. He took responsibility for the bombing in a video released by al-Qaida, and was shown at a training camp, Marshall said.
"The events of May 27, 2009, remind us that terrorism is not defined by Muslims targeting non-Muslims, but is defined by violent extremists targeting anyone they perceive as a threat to their oppressive agenda," Marshall said.
Khan's attorney, Larry Matasar, declined to discuss the case.
"We just have to take this one step at a time," he said. "We're going to first try to get him released from custody (Wednesday)."
According to the indictment, Khan conspired with Jaleel and others starting in December 2005.
Jaleel allegedly emailed Khan in 2008 about his plan to travel to Pakistan. Two years earlier, Jaleel had been part of a small group from the Maldives that tried to enter Pakistan for training, but was detained, returned home and placed under house arrest.
Khan, the indictment states, instructed Jaleel on how to avoid detection and offered to help with financial arrangements.
In October 2008, Jaleel wrote that he needed $2,500. According to the indictment, Khan contacted someone in Los Angeles who arranged to have the money waiting for Jaleel in Karachi, Pakistan.
Jaleel wrote to Khan the following month, saying he was about to enter training camp and did not need all the money. Khan allegedly told Jaleel to keep the money so it could be sent to Jaleel's two wives in the Maldives.
Shortly after the suicide attack, Khan wired almost $750 from an Oregon store to one of Jaleel's wives, the indictment states.