It was in response to a bomb threat made over the phone, local media said. The incident was not terror related.
The man, 39, is now in hospital for medical assessment, police said. The area has since been declared safe.
Last December, three people died, including a gunman, after a hostage situation in nearby Martin Place.
Superintendent Mark Walton from Sydney Police told ABC News that the area was shut down as police searched the man's vehicle for dangerous items.
An explosive detection dog and bomb technicians cleared the area, he said.
"It's apparent this man made those threats to draw attention to a grievance that he has," Supt Walton said.
The man was being detained under the mental health act and undergoing questioning and assessment, Supt Walton added.

Girlguiding UK found they needed a new vow that includes non-religious members and those who follow other faiths.
It has been replaced with a new promise to "be true to myself and develop my beliefs".
The new oath drops the reference to God for the first time since Guides began in 1910.
Brownies and Guides currently vow to "to love my God, to serve my Queen and my country".
I promise that I will do my best
To be true to myself and develop my beliefs
To serve the Queen and my community
To help other people
and
To keep the Guide (Brownie) law
The consultation about the vow was carried out earlier this year and involved nearly 44,000 Girlguiding UK members and non-members.
Chief Guide Gill Slocombe said: "Guiding believes in having one promise that is a clear statement of our core values for all our members to commit to. We hope that our new promise will allow all girls - of all faiths and none - to understand and feel proud of their commitment."

Daniel Bragg, 37, hit Julie Cook, 44, so hard he broke her left eye socket in the assault, police said.
Ms Cook fell and hit her head on the floor, causing a serious injury. She died in hospital two days later.
Bragg, who admitted manslaughter, was sentenced to five years and four months in prison.
He initially denied the killing, but changed his plea on the second day of his trial at Winchester Crown Court.
Bragg was overheard by friends four days before Ms Cook was killed saying "one of these days I'm going to kill her", Dorset Police said.
A Domestic Violence Protection Order had been made against Mr Bragg in April stopping him from contacting or going to Ms Cook's home, the force said.
However, the couple, from Bournemouth, remained in contact and on 28 April 2016 - just four days before the assault - a friend of the couple heard Mr Bragg say something to the effect of "if we carry on like this I will end up killing her".
The couple had been at Pokesdown Railway Station when they started arguing and Ms Cook walked away.
After punching her, Bragg initially walked away but returned to help Ms Cook, who was unconscious on the concrete platform, and took her back to her flat.
The couple had been together for about four years before the incident and their relationship was described as "volatile".
Det Insp Neil Phillips said: "There was no justification for such violence. Bragg and Julie clearly had a volatile relationship and efforts had been made to prevent further abuse.
"However, Julie and Bragg continued to maintain contact and she tragically died as a result of his violent behaviour."
A man has been arrested in Sydney after reports of a suspicious package caused police to lock down a part of the central business district.
[NEXT_CONCEPT]
From September, girls joining the Brownies and Guides in the UK, will no longer have to pledge their devotion to God.
[NEXT_CONCEPT]
A man who punched and killed his girlfriend just days after he was overheard saying he would kill her has been jailed.