MEXICO CITY (Reuters) - Mexico has arrested a third man wanted over the 2010 murder of a U.S. Border Patrol agent whose death drew attention to a botched operation to track guns smuggled to Mexico that embarrassed the U.S. government.

Mexican police in the northwestern state of Sinaloa said they had captured Ivan Soto Barraza, suspected of participating in the murder of U.S. agent Brian Terry, who was killed in a shootout in the Arizona borderlands in December 2010.

The killing of Terry was linked to a U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) sting operation dubbed "Fast and Furious," which allowed weapons to slip across the border to Mexico.

Mexican Interpol agents working with federal and state police captured Soto, 30, near the town of El Fuerte late on Wednesday and took him to a prison in Hermosillo, Sonora, on Thursday where he awaits extradition, a police spokesman said.

The U.S. Federal Bureau of Investigation also took part in the operation to track down Soto, the spokesman added.

A number of guns bought in the Fast and Furious scheme were recovered from crime scenes in Mexico. Two tracked by the ATF were also retrieved from a remote spot in southern Arizona where Terry was killed in a shoot-out with suspected bandits.

It was unclear if the weapons were used in his murder.

Terry's slaying set off a political firestorm when it brought to light the ATF sting in which about 2,000 weapons were sold to buyers believed to be straw purchasers for Mexico's powerful drug cartels.

Congressional Republicans slammed the government for the program, and called on Attorney General Eric Holder to resign. The program also strained ties between Mexico and Washington.

In December, Terry's parents filed a wrongful death lawsuit against federal officials over his death.

The operation had been envisioned as a way to track guns from buyers to senior Mexican drug cartel members.

Robert Heyer, Brian Terry's cousin, issued a statement on behalf of the Terry family in response to the arrest.

"Brian's family is pleased to hear of another arrest and we remain hopeful that two additional fugitives believed to be in Mexico will be arrested. Questions remain unanswered about the death of Brian, including details on the failed gun trafficking investigation known as Operation Fast and Furious," he said.

Five Mexican men have been charged over Terry's killing, and following the arrest, only two now remain at large.

Manuel Osorio Arellanes, one of the men in custody, pleaded guilty to first-degree murder in the case in October in a deal with prosecutors that spared him the possible death penalty.

(Reporting by Dave Graham; Additional reporting by David Schwartz and Tim Gaynor in Phoenix; Editing by Lisa Shumaker)