Town councillor Allan Vizor, 63, of Newcross Park, Kingsteignton, has been questioned by police after a complaint was made to officers.
He was formally arrested under a section of the Sexual Offences Act 2003 after attending Torquay police station on the morning of Wednesday last week.
He was interviewed and has been released on police bail.
Cllr Vizor declined to comment yesterday.
Newton Abbot Town Council's clerk Phil Rowe confirmed he had spoken with Cllr Vizor and mayor Cllr David Corney-Walker, saying: "Both myself and the mayor are aware of the allegation and I have spoken to Cllr Vizor about the situation."
Cllr Corney-Walker confirmed he had been informed.
He declined to comment but said: "In such circumstances, I would always operate to the rule that the mayor is strictly neutral in every way, particularly where a criminal allegation has been made.
"I believe very much in British justice and that a person is innocent until proven guilty."
Cllr Vizor joined the town council in 1999 and held the mayoral role in 2003 to 2004.
He had previously worked as a traffic warden in Teignmouth.
A police spokesman said: "Police received a complaint of an alleged sexual assault that then led to a 63-year-old man from the Newton Abbot area being arrested in connection with that.
"He is currently on police bail to return to Torquay police station on Thursday, November 20."
Mr Vizor is also the Portreeve for the Court Leet and Court Barons to the Manorial Borough of Newton Abbot.