Giovanni di Stefano was arrested Monday night in a mansion in Palma on Spain's Mediterranean island of Mallorca, a police official said.
Di Stefano was hospitalized after his arrest and will undergo surgery, the official said without elaborating. She spoke from Palma on condition on anonymity, in line with department rules.
Di Stefano has been living in Palma but the official said she did not know for how long.
An Interior Ministry statement said that between 2004 and 2009 di Stefano allegedly earned large sums of money in Britain, apparently without being licensed to practice law in that country. The statement quoted the European arrest order on the basis of which di Stefano was arrested.
In an earlier incident, the Italian was hired in 2003 by the wife of a man serving a life term and charged her 120,000 pounds for an appeal he never filed, the ministry said. It said di Stefano faces a total of 18 counts of wrongdoing in Britain.
City of London Police did not explicitly say that di Stefano had been arrested on their orders, but when asked about him a spokesman said a 55-year-old man had been arrested in Palma on suspicion of fraud.
Di Stefano is 55, and British officials routinely use that kind of phrasing to indirectly confirm arrests. In Britain, suspects' names are almost never released before they are charged.
City of London Police said the arrest was part of an "ongoing investigation" but refused to elaborate.
Di Stefano is one of several non-Arab lawyers who acted as consultants to the team that defended the deposed Iraqi dictator and associates in his regime. He also defended former Iraqi Foreign Minister Tarik Aziz, the international face of the Saddam regime.
Ousted in the U.S. invasion of 2003, Saddam was executed in December 2006 after being convicted in the killing of 148 Shiites in a crackdown in 1982 in Dujail, north of Baghdad.