Kirill Serebrennikov, 47, was arrested in St. Petersburg on Tuesday after Russia's Investigative Committee said in a statement that it suspected he had misappropriated at least 68m roubles ($1.15m) from 2011 to 2014 in government funds earmarked for an art project.
A controversial Russian director known for his criticism of the state has been arrested and charged with embezzling £880,000, sparking outrage among numerous country's leading political and cultural figures.
Earlier this month, an accountant at the Gogol Centre, Nina Maslyayeva, was brought on trial who testified against the theatre's director, claiming that Serebrennikov along with Malabrodksy and Yuri Itin, set up a scheme to fraudulently syphon off government funds.
The award-winning director has used his work to criticise the authorities in the past, lamenting what he says is the lack of freedom and growing social conservatism in his country.
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His film The Student which was screened at the Cannes Film Festival past year is a critique of growing religious fundamentalism in Russian society.
The detention of one of Russia's most sought-after directors has shocked the art community.
"We believe such treatment of Kirill Serebrennikov is unacceptable", news website Meduza wrote in an editorial, saying the case against him is "unconvincing" because it claims that a play which received wide acclaim in Russian Federation and overseas was never staged. "Your creative work must glorify the authorities and with your friends, you should hold your tongue", he wrote.
Investigators had previously confiscated his passport, preventing him from travelling overseas.
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Investigators began questioning the director on Tuesday and a court was expected to rule later in the day on whether to keep him in custody, the TASS state news agency reported, quoting a person familiar with the case.
Police have already arrested three people in connection with the inquiry, two of whom are in custody and the other under house arrest.
The case against the theater and Serebrennikov is widely seen as part of a state crackdown on the arts, or the director personally.
In July, the Bolshoi Theatre postponed the world premiere of "Nureyev", an edgy ballet about the famous Russian dancer which was directed by Serebrennikov.
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