The arrests follow a joint operation involving the National Crime Agency and Judicial Police of Portugal.
Approximately 18 kilos of cocaine were recovered by Portuguese officers, contained in bowls and crisp packets.
The haul, if adulterated and sold in the UK, could have had a potential street value in excess of £2 million, the Agency said.
Six of those arrested, including the two UK citizens and the Dutch national living in London, had recently arrived on the island from the UK and were due to travel on from Madeira to various locations in Europe, including the UK. Four had been passengers on the cruise.
All twelve have been detained pending prosecution in the Portuguese courts.
We believe this operation will have seriously disrupted an organised crime group looking to traffic cocaine into the UK and Europe. Working with our Portuguese colleagues we have been able to act on intelligence at speed and prevent this quantity of drugs from reaching its final destination. Once in the UK we know cocaine generates huge profits for criminal networks who are also involved in street violence and exploitation, so stopping it will help reduce the harm caused by them,
...said Allan Round, NCA operations manager at the Joint Border Intelligence Unit.