Officers initially uncovered 10,000 reais (£1,400) and $6,000 (£4,650) inside a safe at the home of senator Chico Rodrigues.
Shortly after the discovery, the politician reportedly asked if he could go to the bathroom but, as he walked away, an eagle-eyed officer spotted a large, rectangular bulge in his shorts.
The police report stated: “Found inside his underwear, near his buttocks, were stacks of money that totalled 15,000 reais (£2,000).”
Police said Mr Rodrigues was asked three times whether any additional cash was stowed away in the same place before he angrily shoved his hand into his underwear to fish out more stacks of bills totalling 17,900 reais (£2,475).
A subsequent police search turned up another 250 reais (£35) from inside his underpants.
He was suspended from the senate for 90 days by Supreme Court justice Luis Roberto Barroso.
Justice Barroso wrote in his ruling that he had decided not to provide video footage of the police search to the senate because it was “well within his (Rodrigues’) intimate clothing” and could cause “greater discomfort”.
He added that Mr Rodrigues’ decision to hide the money indicated impropriety and had raised the possibility of decreeing preventative imprisonment.
Mr Rodrigues said in a statement: “My home was invaded for having done my job as a lawmaker, getting resources for the state to combat Covid-19.
“I believe in justice and I will prove that I have nothing to do with any illicit act.”
Shortly before news broke of the police raid, Mr Bolsonaro said he would deliver a kick to the neck of anyone in his government found to be corrupt.
Mr Bolsonaro repeated his claim on Thursday that his government has not been marred by the scandals previous administrations have.
He also said that, unlike ministers and heads of state-owned enterprises, Mr Rodrigues does not form part of his government.
“We are combating corruption; it makes no difference who the person is,” Mr Bolsonaro said when asked about Mr Rodrigues’ case.
Mr Rodrigues is a member of the joint congressional committee tasked with executing the budget for Covid-19 measures.
Additional reporting by AP