A spokesman for the Mexican town of Reynosa on the US border said 'El Gafe' (The Jinxed One) the leader of the Gulf Cartel had been arrested on Friday and taken to the capital, Mexico City.
The city ground to a halt on Friday afternoon after vehicles were set on fire and shooting began.
Two by-standers may have been killed in the fighting, according to the police.
Reynosa has been the site of turf wars between two rival drug gangs - the Gulf Cartel and the Zetas - over the last year. They have been fighting for control of the border smuggling routes into the United States, and crime rackets.
The Gulf Cartel had been dominant in Reynosa, a city of 610,000 people, just across the border from the US town of McAllen, Texas. But the arrest of several leaders in 2013 had weakened its control in the city, and in the state of Tamaulipas. It also led to infighting within and between cartels.
The US consulate in the city of Matamoros issued a message saying it "has learned of several firefights and roadblocks throughout the city" of Reynosa. It urged Americans to "use extreme caution and to remain in-doors."
More than 100,000 people have died in gang-related violence in Mexico over the past eight years.
jm/bw (AFP, Reuters)