His captors are threatening to kill him if US forces did not pull out from Najaf in 24 hours, according to witnesses and a video tape.
About 30 armed men, including some dressed as police, stormed the Diyafah Hotel in Basra on Thursday, said police captain Hashim Abd Allah.
Hotel owner Muhammad Uglah said the attackers found James Brandon, a freelance journalist, and shot him twice in the leg before taking him away.
The captors instructed a freelance cameraman working for Reuters to film the scene.
Hours later a video tape released in the city showed a hooded captor standing next to the journalist and threatening to kill him if the attack on Najaf was not stopped.
"We demand the American forces withdraw from Najaf within 24 hours or we will kill this British hostage," the captor is heard saying.
"I'm a journalist, I just write about what is happening in Iraq...," the visibly shaken and bare-chested captive said.
A spokesman for Iraqi Shia leader Muqtada al-Sadr on Friday called for Brandon's release.
A spate of kidnappings have
occurred in Iraq recently
In Britain, the Sunday Telegraph was pursuing reports that James Brandon, a journalist who had written stories for the paper, had been seized.
"James Brandon was in Basra filing material for this Sunday's newspaper amongst other projects," Sunday Telegraph Deputy Editor Matthew d'Ancona said. "We are pursuing his situation with the greatest concern."
According to another British freelance journalist who had lived and worked in the same hotel as him in Baghdad, Brandon had been in Iraq for several months and was well used to the risks.
"He had lived in Iraq for the best part of a year without, as far as I can tell, any mishaps, and had previously lived in Yemen which is obviously not a particularly safe place for Westerners to live," Colin Freeman told AFP.
"I think he was fairly well acquainted with the risks of being out there and reporting there and so on," Freeman said.
"He wasn't a sort of gung ho news hack. That wasn't really the sort of stuff that he used to do,"
He said Brandon, who spoke very good Arabic, had worked for a series of English-language newspapers and had been to Basra on at least two previous occasions without a problem.
"He wasn't a sort of gung ho news hack," said Freeman. "That wasn't really the sort of stuff that he used to do."
"He wasn't running around after every car bomb and so on," he said. "He was probably more interested in trying to write features and that sort of stuff."
Brandon has been writing for several other British newspapers while in Iraq, including the Scotsman and the Independent.
He has also worked for the financial services group Bloomberg, providing Iraqi exchange rate information from Baghdad.
A spate of kidnappings have occurred in Iraq in the last few months aimed at driving out individuals, companies and troops supporting US occupation forces and the new Iraqi interim administration.
While some captives were freed, nine have been killed so far.