Bedfordshire Police said on Tuesday that Omar Khayam, 22, had been arrested for breaching parole and was being sent back to prison.
In 2002, Khayam was convicted of possessing crack cocaine with intent to supply, and was ordered to serve six years in prison.
He was released on parole last year after serving half his sentence.
Police said the Home Office sought an investigation of Khayam's behaviour after he was photographed last week at a demonstration dressed in fatigues, a black cap, and a bulky belt.
On Monday, Khayam met reporters outside his home in Bedford, north of London, and said he "wholeheartedly" regretted causing offence.
A Home Office spokesman said that if the behaviour of a paroled offender "gives cause for concern," he could be sent back to prison.
Calls for violence
Intimidating or provocative behaviour, or failing to recognise the impact of behaviour on others, could breach parole, the spokesman said anonymously, in keeping with government policy.
Pictures of Khayam, 22, and other demonstrators bearing placards, calling for violence led to calls for the police to arrest the protesters.
London police have made no other arrests over the demonstration, but have said they are still examining images of the protest.
Moderate Muslim groups in Britain said on Tuesday they would stage a rally in London this weekend to counter angry protests by Khayam and other extremist elements.
"The purpose (of the rally) is to put across the mainstream Islamic viewpoint"
Inayat Bunglawala, member of the Muslim Council of Britain
Inayat Bunglawala, from the Muslim Council of Britain, said the planned protest on Saturday would be a peaceful rally to "re-focus attention" on the original dispute about the cartoons.
Bunglawala said: "The purpose (of the rally) is to put across the mainstream Islamic viewpoint. We think the extremists, with their disgraceful placards, have turned attention away from the original issue."