The paper and its jailed owner Jimmy Lai have always been a thorn in Beijing's side with unapologetic support for the financial hub's pro-democracy movement and scathing criticism of China's authoritarian leaders.
More than 200 police officers were involved in the search of Apple Daily's offices, and the government said a warrant was obtained to look for evidence of a suspected violation of the national security law.
"They have overall responsibility for the content, style and principles of news reporting", senior superintendent Steve Li told reporters.
Hundreds of police were sent in to detain the editor-in-chief and four other executives at the Apple Daily, and the assets of three linked companies were also frozen.
In a "letter to readers" posted on the Apple Daily website Thursday afternoon, the paper said every one of its journalists has reported the truth, legally and reasonably.
"Everyone must decide for themselves", he told reporters. "Efforts to stifle media freedom and to restrict the free flow of information not only undermine Hong Kong's democratic institutions but they also hurt Hong Kong's credibility and viability as an global hub". "We target perpetrators who would use journalistic work as a tool to engage in acts that endanger national security".
Hong Kong Security Secretary John Lee described the newspaper offices as a "crime scene".
Trading in the shares of Next Digital was halted Thursday morning, according to a notice on the Hong Kong stock exchange.
He is also accused of breaching the national security law in connection with protest activities.
It has criminalised much dissent, given China jurisdiction over some cases and awarded authorities a suite of powerful new investigation powers.
Although the odds appear stacked against them, Apple Daily has vowed to "press on". He is serving a prison sentence.
The Chinese government's liaison office in Hong Kong said in a statement Thursday that it supported police action, noting that while the city's mini-constitution, the Basic Law, guarantees the freedoms of speech and press, those rights can not undermine the "bottom line of national security".
Until Thursday's raid, authorities had left the company's assets alone.
Apple Daily has struggled to successfully monetise online content, with Lai writing cheques to keep the paper afloat.
The raid "further demonstrates how the national security law is being used to stifle media freedom and freedom of expression in Hong Kong", EU spokesperson Nabila Massrali said in a statement.
Apple Daily has often criticised the Chinese and Hong Kong governments for tightening control over the city and walking back on promises by Beijing that the territory could retain its freedoms when it was handed over from Britain in 1997.
Lai, 73, was among the first high-profile democracy activists arrested under the law. Scores of others have fled overseas.
Speaking with AFP last month, chief editor Law admitted the paper was in "crisis" since Lai's jailing but said his reporters were determined to press on with publishing.
The paper broadcast live footage of the police raid on its Facebook account.