Battisti apparently tried to leave Brazil for Bolivia amid reports that Italy had recently asked the Brazilian government to revoke his asylum status and deport him to his home country, where he faces life in prison.
Italian Foreign Minister Angelino Alfano said in a tweet on Thursday that he was working with Rome's ambassador to Brazil to "bring Battisti back to Italy and hand him over to justice".
Battisti was stopped by highway police on Wednesday night as he attempted to cross the Brazilian-Bolivian border in a taxi. He was detained for carrying undeclared foreign currency, according to a police statement.
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Battisti, 62, is wanted in Italy for the murders of four people in the 1970s, when he belonged to an armed Marxist group called Armed Proletarians for Communism.
He has spent some 30 years on the run after escaping from an Italian prison in 1981. He fled first to France, where he wrote a series of crime novels, before moving to Brazil in 2004 when it appeared he could face extradition to Italy.
Cesare Battisti in February 2012. Photo: Christophe Simon/AFP
He lived there in secret before being arrested in Rio de Janeiro in 2007. After four years in confinement, Battisti was released in 2011 and given permanent residency in Brazil.
Former Brazilian president Luiz Inacio Lula da Silva granted Battisti refugee status on his last day of office in 2010, a move that sparked a diplomatic row between Italy and Brazil.
The Italian government last week asked Brazil to reconsider its decision not to extradite Battisti, according to Brazilian newspaper O Globo.
Italian politicians welcomed Battisti's detention and called for his return to Italy.
Former Italian prime minister Matteo Renzi described Battisti as "a terrorist, a criminal" and called on Brazil to extradite him so that he could pay for his actions in prison.
"That, simply, is called justice," Renzi wrote on Facebook.