The Milan prosecutors office said the judge leading the investigation, Guido Salvini, ordered the arrest late on Thursday on charges of “international terrorism” of the five, including Mahjub Abd al-Razzak, an Algerian known as “the shaikh”.
He is considered by investigators as being an important member of the al-Qaida network. One of the five arrested was a woman.
Italian prosecutors said the dismantlement of the Milan-based cell, which allegedly had contacts throughout northern Italy, was trying to recruit fighters for attacks in Iraq.
Prosecutors allege that before arriving in Iraq the recruits would undergo training in camps in Syria headed by a man named Mullah Fuad, or in Turkey near Istanbul.
Italian forces serving in Iraq were hit by a deadly attack earlier this month when an explosives-laden truck destroyed a police base in the southern Iraqi town of Nasiriya, leaving 28 people dead including 19 Italians. It was the worst attack on Italian forces since World War II.