David Royle, 49, who has represented Fallowfield for more than a decade is being investigated for homosexual activity with a young boy.
Greater Manchester Police confirmed the Labour party backbencher was arrested on July 27 on suspicion of rape of a young boy.
He has been bailed until the middle of next month.
It is understood senior local Labour figures were made aware of the allegation well before the council broke for the summer.
A Greater Manchester Police spokesman said: “On Monday, July 27 2015, a 49-year-old man from Fallowfield was arrested on suspicion of sexual activity with a child.
“He has now been bailed until October 14, pending further enquiries.”
Mr Royle has been a Labour councillor for 15 years, at one time serving as the town hall’s assistant executive member for the environment.
More recently, he has served on the council’s licensing and appeals and community scrutiny committees.
Labour Councillor Royle refused to comment.
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