The US Justice Department said it had "restrained" the 1909 masterpiece "Compotier et tasse", which had been offered for private sale in New York, amid a probe into its owners, Gabriella Amati and her late husband Angelo Maj.
The couple have been charged by Italian prosecutors with a tax swindle which netted them some $44 million. US authorities have said the Picasso painting was acquired with money obtained through criminal activity.
US and Italian authorities are now working to repatriate the painting to Italy as swiftly as possible, a statement said.
"We are pleased to have played a role in securing this valuable work of art by the celebrated artist, Pablo Picasso, on behalf of the Italian government," US Attorney Preet Bharara said.
"Our commitment to 'taking the profit out of crime' transcends national boundaries and is the operating principle of our asset forfeiture program."
US Immigration and Customs Enforcement (ICE) officers tracked down the painting in New York in May before a federal court signed a restraining order after a formal request from Italy.
"Restraining this valuable artwork is an effort to help recover some of the estimated $44 million that this couple stole from the tax-paying citizens of Naples," ICE Director John Morton said.
"We are very pleased that our investigation has led to the recovery of this painting that is so significant to the Italian people."