Pradeep Tiwari was apprehended on Thursday night after he was chased by a constable from Dadar in Central Mumbai, they said.
Tiwari had been allegedly extorting Rs 10 each from the hawkers at Bhaji Galli for the past few days by posing as a policeman attached with the ACB.
"A fake ACB card was also recovered from him. He also threatened hawkers claiming he had good contacts with the Crime Branch, Brihanmumbai Municipal Corporation (BMC) and Central Bureau of Investigation (CBI) officials and if they didn't pay the money, they wouldn't be allowed to conduct business on the streets," said B Landge, inspector at Shivaji Park police station.
Another officer said the hawkers were "inspired" by Hazare's anti-corruption movement and hence pledged not to offer bribe to anyone.
On the day of the incident, introducing himself as an ACB cop, Tiwari demanded Rs 10 from a vegetable vendor Rakesh Vaish who got suspicious about his credentials and alerted fellow vendors and cops.
As a constable intercepted him, Tiwari claimed he was an ACB cop and had "good contacts". After a while, he ran away from the spot but was ultimately arrested on charges of extortion, police said.