Thirteen people were arrested and numerous seizures carried out in Rome on Thursday morning, La Repubblica reported.
Those under investigation are accused of selling off items from yellow clothes banks, set up around Rome under the guise of charity donations.
Rather than benefitting the needy, the clothes were instead shipped abroad and resold in eastern Europe and African countries.
Two social cooperatives, named in Italian media as New Horizon Onlus and Lapemaia, have been seized as part of the probe.
The clothes trafficking ring is reportedly led by Pietro Cozzolino, a boss from Italy’s Camorra mafia in the Naples area, La Repubblica said.
The scam may also have links to the “Mafia Capitale” scandal, through which investigators have discovered links between Rome's city hall and criminals profiting from public services.
Investigators reportedly came across a text message sent from Salvatore Buzzi, arrested late last year over the alleged corruption, to Mario Monge, who heads up a consortium said to be involved in the illegal clothing trade.
“Thanks, you’re a friend,” Buzzi was quoted as telling Monge.