Three masked men ambushed the official as he carried the cash in two suitcases to a chauffeur-driven car in London's Knightsbridge area, The Sun reported.
One robber reportedly put a gun to his head and said: "Give me the money or I'll blow your brains out."
The gunmen fled the scene but were apprehended nearby by the Metropolitan Police's Diplomatic Protection Group, who had been alerted.
Two suspects surrendered but a third escaped and is still on the run.
The money was withdrawn from the National Bank of Dubai's London branch reportedly on behalf of a member of Dubai's royal family - the Al Maktoums.
An official said the robbers may have had inside information.
"It is protocol that cash is withdrawn in advance for a proposed trip by Arab royalty and someone obviously cottoned on to that," he said.
"The diplomat was being helped by three bank workers to put the cash in a Mercedes when the suspects struck. He phoned the police and the getaway car was stopped by a diplomatic protection crew 20 minutes later."
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