Prosecutor Eric Maillaud of eastern Annecy said that the 48-year-old former officer and weapons buff and a friend who was also taken into custody would be held temporarily on separate suspicions of weapons trafficking.
The men were detained this week in a probe of the September 2012 slayings of businessman Saad al-Hilli, his wife, her mother and a French cyclist — the first arrests in the case in France.
The unsolved case has thwarted investigators and gained wide publicity in Britain and France.
Mr Maillaud said: “The searches and interviews of the last three days have not enabled us to establish a direct link between the events of September 5, 2012, and this man, a war weapons enthusiast, who looked very like the e-fit released on November 4 2013 and who was near to the place where the incident took place when it happened.
“The weapon used in the crime has not been found, neither has the helmet which featured in the e-fit, nor the motorbike described by several witnesses which investigators were looking for.
“The investigation continues.
“However, the man will be taken into custody, overseen by the public prosecutor’s office in Annecy, in connection with illicit trading in wartime weapons and ammunition found during searches by investigators, this illicit activity being carried out as part of an organised gang.”
On Wednesday, Mr Maillaud told journalists that 40 wartime guns were found when officers searched the suspect’s home and that of his in-laws, but not the murder weapon.
According to local media, the man arrested in France is a former municipal policeman who lived close to the scene of the murders in Chevaline. He was reportedly dismissed from the force last June.
The murders were discovered by cyclist Brett Martin, who found Iraqi-born Mr al-Hilli, 50, his 47-year-old dentist wife and her elderly mother blasted to death in their BMW.
The al-Hillis’ eldest daughter, Zainab, was shot in the shoulder and beaten, but survived. Her then four-year-old sister Zeena lay hidden under her mother’s body and was only discovered eight hours after the murders.