Police made the discovery in the parking lot outside a discount store at Cedar and Shields in central Fresno.
Officers spotted the stolen car and followed the driver inside the store where they arrested him.
Then, during a search of the car, investigators found the hand-grenade.
The Fresno Bomb Squad was called out and a section of the parking lot had to be roped off while experts removed the device.
The suspect has been identified as David Davidson.
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