The former treasurer of Spain's Islamic Commission is accused of funding Al Qaeda militants through a Syrian orphan charity.
Mohamed Hatem Rohaibani Sleik, 61, is one of three men arrested in dawn raids in Madrid and Santa Cruz de Tenerife on Tuesday.
Mr Sleik, who was remanded in custody, is the former treasurer at the Islamic Commission of Spain (CIE). He was arrested with CIE president Mohammad Ayman Adlbi, who has since been released, along with a second man.
"The suspects are believed to have used a non-governmental organisation to finance the activities of Al Qaeda-affiliated militants," Europol said.
"The network diverted funds raised in good faith by religious associations, under the cover of using them as humanitarian aid for Syrian orphans.
"In addition to financing the activities of terrorist fighters, part of the funds were used to cover the costs of a school for orphaned children, which is involved in training future terrorist fighters.
"The school focused on radicalising, providing combat training and encouraging orphans to continue the terrorist activities of their parents killed in combat."
Four raids were carried out as part of the investigation and cash, valuables, documents and technical devices were seized for analysis by investigators.
"They channelled money from Spain – contributed by sympathisers – to an NGO in a conflict zone, whose activities were aimed at instructing future mujahideen," Spain's police force said on Twitter.
On Thursday, Mr Ayman Adlbi, 74, described the investigators' focus on him as unfounded.
He was arrested at his home in Madrid on Tuesday and was later released without charge.
"I must express our confidence in the judicial administration, regardless of the suspicions, which we consider unfounded," Mr Ayman Adlbi said.
He also voiced his "great displeasure" at being arrested when he could have easily been invited for "an interview" at the police station.
Police are investigating global Islamist funding networks that send money to Syria and other conflict zones.
The inquiry is being handled by an investigative unit that deals with terrorism-related issues.
Mr Ayman Adlbi was appointed last year to head the CIE, which represents Muslims in Spain and oversees religious services at the country's mosques.
CIE is due to hold an emergency council meeting on April 11.
"CIE will meet to clarify what happened after the arrest by the police and subsequent release of its president," Islam in Murcia said on Friday,
"Mohamed Hatem Rohaibani Sleik, a 61-year-old Syrian man, has been sent to provisional prison by the reinforcement judge of the Central Court for allegedly belonging to a terrorist organisation and financing of terrorism by diverting humanitarian aid destined for orphaned children in Syria.
"CIE sources have assured Islam in Murcia that the only money they handle comes from the public subsidy they receive from the Pluralism and Coexistence Foundation, and that their budgets are audited annually."
Mr Sleik stepped down as treasurer of CIE last summer.