Historian Richard Pankhurst, who flew to Ethiopia with the weapon, said it had been in the possession of a theatrical props company in London.
Pankhurst said he had identified it as a sword looted by British troops from Ethiopia over a century ago.
The curved sword, valued at just under $9000, will be displayed at the Institute of Ethiopian Studies in the capital, Addis Ababa.
"This gesture should be repeated by the various museums and the queen's library that are currently illegitimately holding priceless looted treasure from Maqdala," where British troops annihilated the Ethiopian army in 1868, the historian said.
Objects for return
Pankhurst has been leading the campaign for the return of hundreds of sacred objects and artifacts looted by British troops from Ethiopia on the rampage after defeating the
Ethiopian army at the Battle of Maqdala in 1868.
Among the most important items are a gold crown and chalice belonging to Emperor Tewodros II, about 350 manuscripts, 10 altar slabs and religious crosses.
The items are held mainly at the British Library, the British Museum and the Royal Library at Windsor Castle, as well as at the Victoria and Albert Museum.
Britain's royal family holds six religious manuscripts said to be the finest examples of Ethiopian manuscripts anywhere in the world.
By far, the most valuable item is one of two copies of the Kebra Negast - or Glory of Kings - Ethiopia's holy book held in the British Library.
The Ethiopian Church and government have been exerting diplomatic pressure on Britain to return the stolen items, which are cumulatively valued by Ethiopian campaigners at $3 billion.
Britain says the law only permits repatriation of such items through a vote in Parliament. However, campaigners argue they could be returned on permanent loan without a vote.