Nato said the unnamed militant was "directly involved" in the kidnap of the New York Times reporter, which triggered a controversial and bloody special forces raid to release him.
Mr Farrell spent four days in captivity in northern Afghanistan in September 2009 after he was taken while reporting on the aftermath of a German air strike which killed scores of civilians in Kunduz province.
The then British defence and foreign secretaries authorised a special forces night raid to free him, after consulting Gordon Brown.
However the daring assault ended in a bloodbath and Mr Brown later appeared to try to distance himself from the decision.
Mr Farrell, who still works for the New York Times, was successfully freed, but a British soldier, Mr Farrell's Afghan colleague and a woman and child died in the shoot out.
The commander was seized in Takhar province without a shot being fired. He led the Taliban's shadow government in the Chahar Darah district of Kunduz, where militants have successfully opened a "northern front" against the local German contingent of troops.
A Nato statement said he maintained links to high-level Taliban leaders in Pakistan, as well as their allies in the Islamic Movement of Uzbekistan.
It said he had: "terrorised the local populace by forcibly collecting taxes from residents, intimidating relatives of police and conducting attacks against government buildings".
Mr Farrell and his colleague Sultan Munadi were taken while visiting where two hijacked fuel tankers had been hit by Nato bombs.
A large crowd of Afghan civilians was unloading fuel from the trucks when they were hit and an investigation found scores of innocent people were incinerated or badly burned in the strike.
After Corporal John Harrison, a paratrooper serving with the special forces, and Mr Munadi died in the raid, military sources criticised Mr Farrell for ignoring police advice and venturing into a known Taliban stronghold.
