Sir Salamo was charged after police and soldiers led by the Deputy Prime Minister, Belden Namah, tried to arrest him in his own court.
They attempted to arrest him while he was hearing a Supreme Court case, but Sir Salamo fled to a separate room in the chambers and locked himself in.
After more than two hours of negotiations, police escorted him to a courtroom for a formal interview.
He was then charged with sedition and released on bail.
In a statement, police commissioner Tom Kulunga said the attempted arrest followed a complaint made by prime minister Peter O'Neil.
No details of the allegations against Sir Salamo have been released.
The sedition charge stems from his role in a Supreme Court decision, upholding an earlier ruling that Peter O'Neill's Prime Ministership was unconstitutional.
Mr O'Neill and his supporters say the decision amounts to interference with government ministers and parliament.
Sir Salamo says he's confident he'll beat the charge because judges and court officials are immune from being prosecuted for carrying out their duties.
The ABC spoke to Sir Salamo before he was charged, and ge said he feared for his safety and for PNG's democracy.
On Tuesday, the deputy prime minister warned Sir Salamo and two other judges they had to resign within 24 hours or they would be arrested and charged with sedition.
That followed the Supreme Court's decision on Monday that upheld an earlier ruling ordering Sir Michael Somare be reinstated as prime minister.
On Thursday afternoon Mr Namah carried through on his threats.
Sir Salamo believes Mr Namah's actions in directing police to arrest him shows the police are not independent and that they are not acting under the command of the police commissioner, but directly under the command of the deputy prime minister.
Outside court, Mr Namah denied his actions set a dangerous precedent for the country.
"I gave him 24 hours. Time has run out. That is it," he said.
Another Supreme Court judge, Nicholas Kirriwom, was also at the courthouse and said he was distressed by the day's events.
"It's a very sad day for Papua New Guinea, for democracy, for the constitution, but that doesn't mean that we are going to submit that easily," he said.
"We will stand up and fight for the constitution in this country."
Australian Prime Minister Julia Gillard says she has spoken with Mr O'Neill to express her concern about the latest developments.
A spokesman for Ms Gillard says Mr O'Neill agreed it was important that the current situation does not detract from the good progress being made towards this year's election.
Foreign Minister Bob Carr has also contacted the PNG government and urged it not to take action against Sir Salamo.
He says the PNG government should ignore any decisions they resent from the judiciary and press ahead with the elections.
"I'd just caution that action against the chief justice is entirely unnecessary," he said.
"There's a course for an election, the writs have been issued, the date is set. The election is the thing that's important, the election confers legitimacy and authority on the government."