Officers in the southern city of Bari confirmed that 23-year-old Hakim Nasri was being held on suspicion of international terrorism, while Gulistan Ahmadzai, 29, was arrested on suspicion of aiding illegal immigration.
Pictures have since emerged of Nasri posing with what is thought to be a MS16 semi automatic rifle, which said to be difficult to find on the market.
Prosecutors in Bari said that mobile phone data was seized from four suspects when they were previously detained for filming in a shopping mall.
Authorities say that the data showed that they had pictures of potential targets in Bari, including the airport and port, as well as ones in Rome, Paris and drawings of Canary Wharf in London and hotels in the city.
The cell is also alleged to have researched a shopping centre, cinema, spa and restaurant in the London Docklands area around West India Quay.
According to Italian newspaper, Corriere della Sera, they also had pictures of the Sunborn Yacht hotel in Royal Victoria Dock, the Premier Inn at International Square and the Ibis hotel near the Excel Centre. Among the pictures of Rome were images of the Colosseum and the Circus Maximus.
An arrest warrant has been issued for three other suspects but only one of them is thought to be still in Italy.
According to the warrant, the terror cell had been established in Puglia, in south eastern Italy, ‘to carry out violent attacks with the purpose of international terrorism, in Italy and abroad.’
In all, the warrant calls for the arrest of five people, four Afghans and a Pakistani, three of whom are still at large.
They are all officially resident near Bari, the main city in Puglia, but two are currently in Afghanistan, the source said.
Three of the suspects are accused of international terrorism and two of aiding illegal immigration.
Italy has not suffered deadly Islamist attacks like those in France and Belgium, but a number of people have been arrested on suspicion of planning assaults.
The group are suspected of acting as a local unit or providing logistical support to an international organisation linked to ISIS, investigators wrote in the arrest order.
The organisation was also active in France and Belgium, the order said. Their plans to attack focused on Rome and London.
Public prosecutor Giuseppe Drago told Italian newspaper La Repubblica: ‘They planned to carry out terror attacks against government and military targets, public institutions, international companies and civilian targets.
‘They had weapons as well as photo and video documentation which had been taken during preliminary surveys of potential targets.’
While his counterpart Roberto Rossi added: ‘It was clear these were not tourist images. They appear to have been scouting sensitive sites.
‘The phones also contained images of Italian and Afghan military vehicles and weapons, as well as Taliban propaganda videos and a series of chants traditionally sung in preparation for martyrdom.
‘Just because someone who is Pakistani or Afghan takes pictures does not mean they are dishonest.
‘But the prevalence of photos of sensitive sights where tourists in general don’t take pictures … taken together, assume an extremely strong meaning.’
Also found one the phones of the two arrested men were extremist propaganda and pictures of themselves posing with MS16 semi automatic rifle, which Rossi said was ‘not an easy weapon to find on the market.’
Nasri even had taken a photo with the Bari mayor, Antonio Decaro, during a march to show solidarity with immigrant citizens last September.
In addition to plotting terror attacks, the cell was reportedly working to help illegally traffick migrants between Bari, Calais and Hungary.
Interior Minister Angelino Alfano hailed the ‘success of a high-level inquiry’ and said the case showed no country was ‘zero risk’.