Police arrested one suspect and raided locations across Italy's central Lazio region in an operation against Ansar Al-Sharia, a Libyan organisation linked to Al Qaeda and the Islamic State jihadist groups.
At a press conference in Rome, police showed journalists an IS flag and knives which they said were among items seized in the raids.
The man arrested was married to an Italian convert to Islam and had a child, said police. He has already spent time in six different Italian jails for crimes unrelated to terrorism, according to police.
"This operation demonstrates how prison can be a place for spreading terrorist ideologies," Rome daily Il Messaggero cited a police officer as saying.
Il Messaggero quoted police as naming the man as Hmidi Saber. He had never worked and while in prison told guards he would cut off their heads "in the name of Allah," police were cited as saying.
Saber also allegedly proselytised for Al-Qaeda and IS while in jail, threatened other inmates and told them he would travel to Syria with his family "to help our Muslim brothers," police said.
Saber is 34 and is in custody in Rome's Rebbibia jail. He lived in Ciampino near Rome and was a senior leader of the alleged cell, daily La Repubblica reported.
Monday's operation showed how Italy faced "an increasingly fragmented threat linked to petty criminals who are susceptible to ideological and religious extremism," investigators said.
During the operation, police carried out five raids at premises linked to individuals with alleged ties to Saber but no further arrests were expected, according to investigators.
Police did not confirm that Saber's arrest and Monday's raids followed leads from probes linked to Anis Amri, the Tunisian suspect in the Berlin Christmas market attack who police shot dead in Milan last month and who spent four years in Sicilian jails.
