Hussain Shamshir was found to be travelling on a false British passport, according to British media reports.
The 34-year-old was arrested on Saturday while driving in Rome's suburb of Torpignattara with three other men in a German-registered car.
Described by Italian police as a former professional boxer who worked as a pizza baker in a London suburb, Shamshir was carrying 5,000 euros in cash when he was stopped for questioning by anti-terrorist police who had been tailing his vehicle, The Daily Telegraph reported quoting Corriere della Sera' newspaper in Italy.
The three men travelling with him, two Pakistanis and a Kurd, were released after questioning.
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Italian police investigators believe the money was brought to Rome to finance terrorist sleeper cells or terrorist attacks in the country.
Police sources told the Italian newspaper that the Belgian connection was one of the reasons Shamshir was arrested as well as the false passport, large amount of cash and criminal record in the UK.
"We are in contact with Italian authorities following the arrest of a British national in Rome," a British Foreign Office spokesperson said.