Parmjeet Singh Saini is fighting extradition to India, where authorities believe he was involved in the murder of Punjabpolitician Rulda Singh in 2009 and a series of bomb attacks in north-west India in 2010.
Indian authorities claim Saini, who came to the UK from India 13 years ago claiming political asylum, is a leading member of Babbar Khalsa International.
The organisation, which had its international base in the West Midlands region in England, supports armed struggle for an independent Sikh homeland of Khalistan and was banned in the UK under the Anti-Terror Act 2000.
"I am very concerned about Saini's detention and I have made strong and urgent representations on his behalf to the Foreign Office at a ministerial level," Spellar said
Also Read
"Saini has refugee status in the UK and travelled to Portugal on a family holiday using official British documents and under the protection of the British state," he said
"It's a slightly perverse state of affairs that the Indian government has been able to activate an Interpol red notice and demand Saini's extradition to India to face terror related charges," Spellar was quoted as saying by the 'Express and Star' newspaper.
The delivery driver, who lives with his British wife and four children, was eventually released without charge after an 11-month probe along with three other West Midland Sikhs.
"It was really distressing to see Paramjeet taken away without knowing what was happening to him. We know that if he gets taken to India we will never see him again. The UK government let us stay in England because they know what will happen to him if he is arrested," Pinky Kaur, Saini's wife, said in a written statement from Portugal.
A spokesperson for Interpol said a red "wanted" notice had been issued against Saini in 2012 at the request of the Indian government, adding it was not a legally binding international arrest warrant.
"A country can exercise its right to ignore the notice which is what the UK government chose to do Saini's case," Pinky said.
The UK Foreign and Commonwealth officials said the matter had now been referred to the Home Office because of Saini's immigration status.