Turkish police have caught a man trying to sell a jewelled dagger allegedly pillaged from the palace of former Libyan dictator Muammar Gaddafi, according to the state-run news agency.

Police confiscated the carved ivory dagger encrusted with rubies, sapphires, emeralds and diamonds during a raid in the Istanbul suburb of Esenyurt, the Anadolu agency reported.

Alongside the dagger, police found a studded sheath and an ornate base decorated with lion figurines.

A businessman, who allegedly bought the dagger for $4.6m (£3.2m) in Libya three months ago, and two suspected accomplices were detained in an anti-smuggling operation.

The businessman was caught trying to sell the dagger to a Saudi national for $10m.

Gaddafi was overthrown and killed in 2011 after a Nato-backed uprising. The Islamic State group and other extremists have gained ground in the power vacuum following Gaddafi’s ousting.

The three men were released pending trial on possible charges of smuggling and breaching the rules relating to the trade in endangered species.