Taiwan media says Lo, undetected because of his rank, turned over material on a Taiwan-US Pacific Command joint military strike information-sharing platform, proposed sales of Apache helicopters made by Boeing and an island-wide optical cable network.
China has claimed Taiwan since Chiang Kai-shek's Nationalists fled to the island after losing the Chinese civil war to Mao Zedong's Communists. Both sides continue to arm themselves in case of war with the other side just 160 km (100 miles) away.
Even as relations have warmed quickly since 2008 through trade talks under Taiwan's China-friendly President Ma Ying-jeou, the two historic foes have avoided discussion of far more sensitive military issues.
Conversely, Taiwan is pleading with Washington to sell it more US-made weapons systems as the island falls behind China's quickly modernizing armed forces.
Washington risks its own tense but improving relations with global economic powerhouse China by approving any new arms sales to Taiwan and may hold off further as the spy case unfolds, political experts say. Beijing scolds Washington after every Taiwan arms sale.
The de facto US embassy has made no comment on the arrest.
Taiwan, for its part, may look bad at home for allowing the suspected espionage, which could reach back as far as the 1960s.
But the next election in Taiwan, where voters are deeply divided on China policy, is at least nine months away. That gives ruling party officials time to turn the arrest in their favor before the next face-off against the anti-China leading opposition party.