The incident happened in Mongolpuri area of west Delhi Saturday evening.
The girls, aged four and eight, were alone in their home when Anant Ram, a neighbour barged in. After offering sweets, he tried to assault the sisters, police said.
While the younger girl could not realise what she was being forced to go through, her elder sister screamed for help when Ram approached her.
Upon hearing her screams, neighbours rushed and nabbed Ram. They later, handed him over to the police.
"On the statement of the girls and their mother, a case of molestation under relevant sections of the Protection of Children from Sexual Offences (POCSO) Act was registered immediately and Ram arrested," said a police officer.
The police said they were questioning him about his having targeted minors previously and that further investigations were underway.