The Italian interior minister said police in the Sicilian city were holding Nicchi after a raid on an apartment, where he had been hiding.
Roberto Maroni described the 28-year-old convicted Mafioso as a "young, dangerous, ambitious, pitiless killer".
Police found Nicchi, 28, hiding Saturday in an apartment in Palermo. Local news reports said he had tried to flee but was still caught.
Investigators have said Nicchi quickly climbed to the top of the Palermo-based crime family after the arrest of the overall boss Salvatore Lo Piccolo.
Nicchi, a fugitive since 2006, was convicted last year of extortion and sentenced to 18 years in prison.
The Italian news agency Ansa said bugged conversations of bosses convinced police Nicchi was one of the Mafia's top new leaders.
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