Some thirty police officers arrived at Vy’s house in the small town of Buon Ho in the central highland province of Dak Lak on Thursday morning and took her away for questioning.
She was released after 15 hours but told she was under house arrest for three months while the investigation continued.
Vy is well known as a campaigner for the rights of persecuted Montagnard communities in the region and is a co-founder of a the group, Vietnamese Women for Human Rights.
Her arrest was swiftly condemned by fellow activists and by Amnesty International.
“This is nothing more than a politically-motivated attempt to silence one of the most powerful voices for human rights in Vietnam,” said Amnesty’s director of global operations, Clare Algar.
“Through her activism and blogging in support of the rights of women, minorities and human rights in general, Huynh Thuc Vy has worked tirelessly to expose violations and hold the powerful to account,” she said.
Vy is being investigated for smearing white paint last year on the yellow star that adorns the red national flag.
She was quoted by the AFP news agency as saying that the flag represented authoritarian rule by the Communist party and symbolised the abuse of democracy and human rights.
She said that she was frequently targeted by the authorities and would not back down despite the pressure on her.
She had repeatedly rejected summonses by the local police for questioning before the raid on her home on Thursday.