The move comes as part of a campaign to crack down on funding for the Islamists' war effort before foreign combat troops pull out in 2014 and hand responsibility to Afghan security forces.

Mohammed Qasim, who was placed on a sanctions list by the United Nations and the United States last week, was arrested recently in southern Afghanistan, a spokesman for NATO's International Security Assistance Force told AFP.

The US Treasury said Qasim used his Rahat Trading Company for transactions involving millions of dollars to support the Taliban leader in volatile Helmand province, who has been designated a narcotics "kingpin".

According to the US, the company has branches in Afghanistan, Iran and Pakistan "which have been used by the Taliban to facilitate their illicit financial activities".

The Taliban "shadow governor" for Helmand, Mullah Naim Barich, was accused of producing and exporting opium and heroin from the province.

Afghanistan produces about 90 percent of the world's opium, and poppy farmers are taxed by Taliban militants who use the cash to help fund their insurgency.

"We learned American forces had detained Haji Mohammad Qasim from his house in Kandahar on charges of transferring money to the Taliban through his shops here in the money exchange market," exchange president Haji Qandiagha told AFP.

"The next day or two days later the Americans came to the market and detained his niece, nephew and one other person working in his shop and confiscated all the documents there."

Qasim and his company were subjected to an assets freeze, travel ban and arms embargo by the UN on November 20, with Qasim also accused of involvement in the supply of weapons to the Taliban.

"We will continue exposing these illicit networks and deprive the Taliban of their sources of funding no matter where they turn," David Cohen, US under secretary for terrorism and financial intelligence, said when the sanctions were imposed.