Shocked passers-by caught the man in the act in Cornwell Close, Rowner, Gosport, after he left his curtains open at night-time.
Police were called and arrested a man in his 60s on ‘suspicion of a sexual offence involving a living animal’.
A Hampshire police spokesman confirmed the animal has now been seized and is in kennels.
One woman, who did not want to be named, told The News: ‘It was like he wanted to be seen, he had his curtains open and everything.’
A man added: ‘It was absolutely sickening. We were all horrified and disgusted – it was absolutely heinous.
‘The windows were open and the police came and arrested him and the RSPCA took the dog away.’
Hampshire police released the man from custody but are continuing to investigate.
A spokesman said: ‘We can confirm that a man in his 60s has been arrested on suspicion of a sexual offence involving a living animal.
‘This follows an incident involving a dog at an address in Gosport, which was reported to police shortly after 8pm on October 27.
‘The dog has been seized and taken into the care of kennels.
‘The man has been released from custody but remains under investigation while enquiries continue.’
Call 101 with any information.