DHAKA, Feb 16 (Reuters) - Bangladesh police has arrested a leader of a militant Islamic group, Harkat-ul-Jihad al Islami, accused of involvement in a grenade attack on a political rally in 2004 in which 23 people were killed, an official said on Saturday.

Mufti Abu Zandal and an accomplice were picked up during a raid on a village near Satkhira district town, 350 km (219 miles) southwest of the capital Dhaka, on Friday. More than 40 grenades were found in a hideout in the village.

The Harkat was blamed for an attack on a rally held by former prime minister Sheikh Hasina in Dhaka on Aug. 21, 2004. Hasina survived, but her hearing was affected by the blasts.

The head of the group, Mufti Hannan, was arrested the following year when the country was rocked by a wave of bombings blamed on several Islamic groups seeking to turn the country into a theocratic state.

"The Islamist militancy is under control at the moment," Hassan Mahmood Khondakar, chief of the Rapid Action Battalion, told a news conference to announce the latest arrest.

Six top leaders of the Jamaat-ul-Mujahideen and Jagrata Muslim Janata Bangladesh, two groups blamed for most of the 2005 bombings, were executed last year. But security experts say many of their followers are still active and trying to regroup.

(Reporting by Nizam Ahmed; Editing by Sanjeev Miglani)

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