The protester, who told reporters his name was David Lawley Wakelin, managed to evade security and get through number-coded doors to access the judges’ corridor leading to courtroom 73.
The 49-year-old, who said he was from the Alternative Iraq Enquiry, brought proceedings to a halt by hurling accusations at the former prime minister.
He said: “JP Morgan paid him off for the Iraq war. Three months after he invaded Iraq they held up the Iraq bank for $20bn.
“He was then paid $6m every year and still is from JP Morgan six months after he left office.
“This man is a war criminal.”
He was eventually wrestled to the ground by three men and ejected from the court room.
Lord Justice Leveson called for an immediate inquiry into how he had got in. “I would like to find out how this gentleman managed to access the court through what’s supposed to be a secure corridor and I’ll have an investigation undertaken about that immediately.”
After the removal of the protester, Mr Blair denied his allegations. He told the hearing: “What he said about Iraq and JP Morgan is completely untrue.
“I’ve never had a discussion with them about that.”
Meanwhile, the protester was escorted through the Royal Courts of Justice by security guards and was seen being driven away in a police van.
A Scotland Yard spokesman said: “He has been arrested on suspicion of breach of the peace.
“He’s currently in custody at a central London police station.”
A spokesman for Her Majesty’s Courts and Tribunals Service said the service took security very seriously at all of their venues.
“An investigation has been ordered into an incident at the Leveson Inquiry, Royal Courts of Justice... It would be inappropriate to pre-empt the findings of this investigation”.
When the hearing reconvened, Lord Justice Leveson told the court the Inquiry and the courts service took the incident “extremely seriously” and apologised for the breach.
He said: “Considerable effort has been put into ensuring all witnesses can give their evidence in a safe and secure environment and I very much regret what has happened.
“An investigation is being undertaken and I will be giving consideration to the steps that can be taken and should be taken against this particular intruder.
“I repeat my apologies to Mr Blair and indeed to everyone else who was involved in or following our inquiry.”