Alberto Arrighi, 40, allegedly murdered Giacomo Brambilla in the back of his gun shop in the town of Como in northern Italy during an argument over a 100,000 euro debt.
He then reportedly cut off his victim's head and tried to incinerate it in a pizza oven at a pizzeria owned by his father-in-law.
That night he loaded the headless body into his car and drove 150 kilometres away from Como, dumping the corpse in a river near the town of Domodossola, in the Piedmont region, near the border with Switzerland.
The alarm was raised by the victim's girlfriend when he failed to return home from his meeting with Arrighi on Monday.
She called the police who went to the gun shop and found blood stains on the floor and evidence that there had been an attempt to clean it off with bleach.
Arrighi, who was arrested, was reportedly struggling to pay back money he had borrowed from Mr Brambilla, a businessman who owned several petrol stations in the Como area.
"The whole thing was an act of momentary madness, the result of some sort of financial dispute between the two men," said a lawyer acting for Arrighi.
Corriere della Sera said the crime was a "tale of blood and money" reminiscent of an Edgar Allan Poe horror story.
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