It is believed the man dressed the child as a suicide bomber by tying hand grenades to its body.
He has now claimed the image was snapped in 2012 and the grenades were fake, according to reports.
A memorial marks the site in Sousse
The man, who has not been named, has now been arrested in Tunisia
The face of an angelic baby was pictured sleeping beside a handgun and grenade and draped in a blanket with the sinister symbol of the depraved terror cult.
Tunisia was rocked by the Sousse beach massacre in 2015, where an ISIS gunman killed 38 people.
Seifeddine Rezgui was shot dead at the scene