The New Delhi city government has banned Uber after one of its cab drivers was accused of raping a 25-year-old female passenger.
"(The) Transport Department has banned all activities relating to providing any transport service by the www.Uber.com with immediate effect," the government of the Indian capital said.
Police arrested the suspect, Shiv Kumar Yadav, in his home town in the state of Uttar Pradesh.
"The prime accused in the case has been arrested," Madhur Verma, deputy commissioner of Delhi police, told Reuters.
The alleged victim, a finance company executive, told police she dozed off in the taxi as she was returning home from dinner with friends on Friday night.
She woke to find the cab parked in a secluded place where she was assaulted and raped, before she was dumped near her home in northern New Delhi.
The woman, who took a photo of the vehicle's number plate, said the driver threatened to kill her if she reported the attack.
It has since emerged that the 32-year-old driver was arrested for a sexual assault three years ago.
Indian police have said they are considering action against Uber for failing to run a background check.
The attack is a blow to the online taxi service's reputation in India, where women are extremely safety-conscious after a string of rapes that sparked global outrage.
Among them was the fatal gang-rape of a student on a moving bus in Delhi in December 2012.
US-based Uber said earlier it was working with police to solve the latest "terrible crime", and the driver's licence had been suspended.
"Our thoughts are with the victim of this terrible crime and we are working with the police as they investigate," spokeswoman Evelyn Tay said in a statement.
"Safety is Uber's highest priority and in India we work with licensed driver-partners to provide a safe transportation option."
However, Mr Verma said the company had been guilty of "a lot of negligence in terms of security".
"There is no GPS (global positioning system) installed in the vehicle and there was no background check or driver verification done with the police," he said.
Uber has been gaining popularity in India, especially among young, urban workers who use its smartphone app to hire and pay for rides.
But the firm, founded in 2009 and now present in more than 200 cities throughout the world, has faced privacy concerns.
Uber was caught in a storm in the US last month over claims passengers were being spied on using an internal "God view" tool.
Its rapid expansion has also caused tensions with traditional taxi drivers, especially in Europe.
