The troubled singer was rushed to hospital after officers found him unconscious in his Mercedes at a busy junction near his North London home just after 3.20am yesterday morning.
They also discovered a small amount of cannabis in his possession.
Police were called to the scene after receiving reports that his car was obstructing the junction at Cricklewood Lane with Hendon Way, under a mile away from Hampstead Heath.
The 43-year-old star was later taken into custody at Colindale police station in west London, and booked under his real name Georgios Kyriakos Panayiotou.
As well as being cautioned for possessing cannabis, Michael was arrested under the suspicion of being unfit to drive and released on police bail yesterday afternoon.
It is the third time this year the star has been involved in a motoring incident, which many believe is linked to his frequent use of cannabis.
The former Wham frontman was cautioned in February for possession of the class C drug after being found asleep at the wheel of his parked Mercedes near Hyde Park.
The millionaire was arrested for suspicion of being unfit to drive and was held by police over night, although he was never charged.
In April, Michael again faced police questioning after he allegedly smashed into three parked cars in his new £60,000 Range Rover.
Michael, who has just started a sell-out world tour - his first for 15 years - has never made a secret of his fondness for cannabis.
The singer, who has a long-term partner, Kenny Goss, hit the headlines in July after being caught having sex with a stranger on Hampstead Heath.
Michael, in a frank interview with Channel 4's Richard and Judy show, said he felt no shame about his sexual encounters with strangers in public places, an activity known as cruising.
Last night, a spokesman for the Metropolitan Police said: "At approximately 03.22am yesterday officers were informed of a stationary vehicle with a driver inside at traffic lights on Cricklewood Lane near its junction with Hendon Way, causing an obstruction.
"Officers arrested a 43-year-old man on suspicion of being unfit to drive and possession of a controlled substance, believed to be cannabis.
"London Ambulance Service attended and the man was taken to a west London hospital as a precautionary measure.
"He was then taken into custody at a west London police station and later received a caution for possession of cannabis and was bailed to return on a date in November in relation to the allegation of being unfit to drive."