The man was arrested in the Galliagh area on Wednesday under section 41 of the Terrorism ACt 2000.
The incident remains under investigation.
He has been released pending a report to the Public Prosecution Service for the offences of directing terrorism and membership of a proscribed organisation, namely the INLA.
A 19-year-old man was released on Wednesday evening after being arrested by detectives investigating the criminal activities of the INLA in the North West.
He has also been reported to the PPS.
Detectives made the arrests after an INLA ‘show of strength’ in Derry on Tuesday night.
Five masked men were snapped wearing combat clothing with four of the carrying guns.
The picture was later circulated across social media.
Detective Inspector Tom McClure said: “Wednesoday’s search and arrest operation is part of an ongoing investigation into the criminality of INLA in the North West.
“This group are a Service priority for the Paramilitary Crime Task Force due to the level of threat, risk and harm they pose to our communities, and the breadth and depth of their criminality.
“INLA in the North West are involved in violence, extortion and the supply of controlled drugs, illicit cigarettes and counterfeit goods and this strand of the investigation looks to take action against those directing this criminality and money laundering.
“Part of this operation also relates to an investigation into an incident on 20 May this year in the Divis area of Belfast, when an individual recklessly used an automatic weapon to fire a series of shots into the air in a heavily populated area.
“The INLA in Derry and Strabane claim to be protecting their communities by shooting people who they accuse of being involved in crime but the reality is that they use violence and intimidation to control and exploit their communities.
“Their real motivation for using extreme brutality is to try and ensure that no one speaks out or encroaches on what they see as ‘their patch’, where they try to run organised criminal rackets solely for their own financial gain.
“Sometimes they even shoot people who they feel do not show them ‘respect’ or who they simply do not like.
“The Criminal Justice System is the method that works when dealing with criminality such as drug dealing or anti-social behaviour.“In fact, 78% of people subjected to paramilitary style attacks re-offend, quickly and often at a level more serious than before.
“In contrast, the re-offending rates of people who are dealt with through the criminal justice system are much lower – at less than a third – clearly demonstrating there is a better more effective alternative.
“Despite this, there has been an increase in the number of paramilitary style attacks over the past few weeks, which we believe have been carried out by INLA.
“The actions of this paramilitary group of thugs will do nothing but condemn communities to an escalated level of criminality, undermining the good work of others in the community who are trying to improve the lives and prospects of those in the local area.
“This activity is evidence of our commitment to end paramilitary organised criminality in all its forms whether that be drug dealing, intimidation or paramilitary assaults.
“I know that there are many people in the local community who are affected by INLA’s drug dealing and violence and they support our ongoing efforts.
“However, I recognise and understand that there are some who may be reluctant to report crime to the PSNI for various reasons.
“I would like to reassure everyone in the community that the PSNI will investigate all reports of crime and anti-social behaviour lawfully, fairly and proportionately, and where there is evidence bring this before the courts.
“I would appeal for anyone with information regarding criminality by paramilitary organisations to contact police on 101.
“Alternatively, information can also be provided to the independent charity Crimestoppers on 0800 555 111 which is 100% anonymous and gives people the power to speak up and stop crime.”