(Recasts with government confirmation, paramilitaries)

CARACAS, March 9 (Reuters) - Venezuelan authorities have arrested a suspected drug lord and arms smuggler with paramilitary links wanted in the United States on charges of trafficking cocaine, the government said on Sunday.

Police arrested Hermagoras Gonzalez close to the border with Colombia on Saturday, Venezuelan media reported. State television said 48 people it called paramilitary fighters had also been caught in the operation.

The U.S. State Department has offered a $5 million reward for information leading to the arrest of the suspect, known as "Fatty Gonzalez.' It accuses him of smuggling large quantities of cocaine into the United States.

The State Department says Gonzalez ran the Guajira cartel in Colombia and also smuggled arms from Europe through Venezuela to support a paramilitary group fighting Marxist guerrillas in Colombia.

Washington frequently accuses the left-wing government of Venezuelan President Hugo Chavez of not doing enough to stop Colombian cartels moving cocaine through Venezuelan territory.

Chavez cut off cooperation with U.S. anti-drug officials in 2005 over accusations of espionage.

He has refused to sign an anti-drug cooperation agreement with Washington, although Venezuela frequently extradites Colombians accused of drug crimes to the United States.

Gonzalez's lawyer, Freddy Ferrer, said his client was born in Venezuela and under Venezuelan law could not be extradited to the United States.

"It is an illegal and illegitimate arrest," Ferrer told television station Globovision.

The State Department says Gonzalez is Colombian.

Venezuela says fighters often enter its territory from neighboring Colombia, where the army and paramilitary groups are battling leftist rebels.

Colombia's border region was at the center of a diplomatic crisis last week after Venezuela and Quito protested a Colombian raid against leftist rebels inside Ecuador and briefly sent troops to their frontiers with Colombia.

(Reporting by Frank Jack Daniel, editing by Alan Elsner)

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