The 51 year old man has been arrested under the Section 41 of the Terrorism Act.
He has been taken to the Serious Crime Suite at Musgrave Police Station for questioning.
A 64-year-old man was arrested earlier this month of the murder but was later released from custody without charge.
Constable Ferguson was shot dead while on duty in Shipquay Street in the city at around 2pm on Saturday 23 January 1993.
Michael was a 21 year old single man from Omagh.
The Senior Investigating Officer, Detective Inspector Conor Sweeney from Legacy Investigation Branch said: “Michael, along with two colleagues, were attending a call to the Richmond Centre at around 2pm.
“Michael remained on the street when his two colleagues entered the shopping centre.
“A lone gunman approached Michael from behind and shot him twice in the back of the head.
“The gunman made off on foot along Shipquay Street before entering Castle Street in the direction of the Bogside.
“We are following a number of definite lines of enquiry and I believe we are extremely close to progressing criminal justice action against Michael’s killers.“My appeal today is aimed at the local people of Derry who were in Shipquay Street on the day Michael was murdered.
“The gunman did not have his face covered and was wearing a distinctive green jacket. I believe that someone knows who this gunman was.
“Michael was a young man murdered while responding to a reported theft from a local shop. I would ask everyone listening to just stop and think about that for a second.
“Murdered for no other reason than he was providing a service to help local businesses, local community and local people.
“In the years since Michael’s murder, circumstances and allegiances may have changed, people’s lifestyles change and I want those who know who was involved that day to search their consciences and come forward to the police.
“I am aware that time has passed since the murder but it is not too late, if anyone now feels they are able to talk to us, we are ready to listen.
“To those involved I would appeal to them to do the right thing and make a difference to Michael’s family. They will no longer have to live with the worry that someday soon police are going to knock on their door.”
Detective Inspector Sweeney continued: “We are appealing for assistance from the local community who we still believe can help us, despite the amount of time which has elapsed.Anyone with information can contact detectives in Legacy Investigation Branch on 101 or LIBEnquiries@psni.pnn.police.uk.
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.”Tags: