Kem Sokha, the head of the opposition Cambodian National Rescue Party (CNRP) - which made surprise gains in the 2013 elections - was arrested early Sunday on allegations that he schemed with Washington, a perennial target of Hun Sen's rants.
The U.S. State Department expressed concern at the arrest of Ken Sokha and action against the media.
Kem Sokha is the leader of the CNRP which has been battered by court cases, bans and threats against its key figures, including his predecessor Sam Rainsy who fled to France to avoid charges. "And after 24 years and 15 days, the Cambodian government has destroyed The Cambodia Daily, a special and singular of part Cambodia's free press", the newspaper said in a statement Sunday.
The arrest came just hours after pro-government website Fresh News ran a report accusing Kem Sokha of discussing the overthrow of Hun Sen with support from the United States.
The government said the video and other evidence indicated "secret plans of a conspiracy between Kem Sokha. and foreigners to harm the Kingdom of Cambodia".
Police detained Kem Sokha during a midnight raid on his Phnom Penh home, the Associated Press reported.
A former Khmer Rouge officer who defected, Hun Sen has become one of the world's longest-serving leaders through years of wily political manoeuvring and little tolerance of dissent.
The CNRP in a statement on Sunday called for Sokha's immediate release and condemned the arrest of a lawmaker in violation of his constitutional immunity. If Mr Kem Sokha is found guilty of any offence, it could allow the government to shut the party down under a new law that forbids political parties from having a leader who has been convicted.
Finance Ministry representatives were not available for comment.
On August 23, the government closed the National Democratic Institute (NDI), a US -funded NGO, and ordered its expatriate staff out of the country. Earlier in the year, it suspended joint military exercises with the United States, which has voiced fears over the human rights situation.
"The government's charge lacks credibility, given its long record of misusing its legal system to silence or intimidate critics and political opponents", he said.
The Cambodia Daily was founded by American journalist Bernard Krisher in 1993 and Hun Sen this year berated some of its journalists as "servants of foreigners".
Nauert also highlighted recent steps by the Cambodian government against independent media and civil society, saying they "raise serious questions about the government's ability to organize credible national elections in 2018 which produce an outcome that enjoys democratic legitimacy".
The English-language paper had been given a deadline of one month to pay $6.3 million for years of back taxes, which the publication disputed and described as "astronomical".
The newspaper said Monday's edition would be its last and blamed "extra-legal threats by the government to close the Daily, freeze its accounts and prosecute the new owner" for the closure.