The correct option is
C Archaeocytes
A. Under adverse conditions, sponges disintegrate leaving behind small ball like rounded structures called reduction bodies. These reduction bodies contain amoebocytes which are further covered by pinacoderm and spicules. When the conditions become favourable, each reduction body develops into a new sponge.
B. Gemmules are the asexual reproductive bodies which are formed by endogenous budding in all freshwater and some marine sponges.
C. Archaeocytes are the undifferentiated embryonic amoebocytes with blunt pseudopodia and large nucleus, showing totipotency.These cells also give rise to the sex cells (ova and sperms) and also play important role in the regeneration of sponges.
D. Germ cells are the cells that develop into gametes.
Hence, the regeneration ability of sponges is due to archaeocytes.
So, the correct answer is 'Archaeocytes'.