Daniels, 39, was released on $6,000 bail on three misdemeanor charges of illegally operating a sexually oriented business related to knowingly touching a patron.
While Daniels was performing Wednesday night at Sirens, a strip club in Columbus, some patrons touched her in a "non-sexual" way, her lawyer, Michael Avenatti, told The Associated Press. "We will fight all bogus charges", Avenatti said.
Ohio's Community Defense Act prohibits touching a nude or semi-nude dancer in a club, besides members of the dancer's immediate family.
Prosecutors say the "touching" statute only applies to strippers who "regularly appear" at the establishment.
Daniels later announced that a follow-up performance at the same club on Thursday - initially cancelled - would go ahead after all.
Mr Avenatti wrote: "This was a setup & politically motivated. I think it's an absurd use of law enforcement resources".
Avenatti had earlier claimed that the arrest was part of a sting operation in which undercover female police officers asked if they could place their face between her breasts.
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Documents on the Franklin County Municipal Court website show that Daniels will be arraigned Friday at 9 a.m.
The Columbus Police Department said in a statement that Daniels was one of three women arrested at the club.
Daniels, whose real name is Stephanie Clifford, is in the middle of a scandal that some say could topple the US president.
Avenatti said Clifford wouldn't be performing at Sirens as scheduled Thursday night, even with the charges being dropped.
A Columbus police spokeswoman did not immediately respond to requests for comment on the arrest.
Daniels' lawyer, Michael Avenatti, told MSNBC his client has performed the same act hundreds of times without incident.
Daniels, 39, filed a lawsuit against Trump and his former personal attorney, Michael Cohen, late a year ago, seeking to invalidate a nondisclosure agreement that she says barred her from speaking about the alleged affair.
He initially said he used his own money to pay Daniels and was not reimbursed by the president.