Clini, 67, allegedly misappropriated 3.4 million euros (or $4.6 million) in public money for a water treatment project in Iraq, Xinhua quoted the ANSA news agency as saying, quoting police sources.
The sources said Clini kept to himself the money from 54 million euros in environment ministry funds for the project.
Augusto Calore Pretner, an Italian engineer overseeing the project that is a joint Iraqi-Italian initiative to restore marshlands in the Tigris and Euphrates basin, was also put under house arrest along with Clini.
Media reports said the investigation started last year when police uncovered a series of false invoices from a Dutch company for payments to an engineering company based in Italy, of which Calore Pretner was a partner.
At the time of the alleged crime, Clini was director-general of the environment ministry before being appointed environment minister under the technical government of former premier Mario Monti from November 2011 to April 2013.
The Italian political world in recent weeks has been hit by a series of major corruption scandals involving former ministers as well as top officials linked to next year’s world exposition in Milan.