A 50-year-old man from Stanwell was arrested on suspicion of attempted murder and racially aggravated public order.
The 19-year-old victim sustained non-life threatening injuries and remains in hospital.
Surrey Police were called to Viola Avenue, Stanwell, just before 10.30pm on Saturday to reports of a man acting aggressively and shouting racist comments whilst carrying a baseball bat and a knife.
Several nearby vehicles were also damaged.
A further call was received by Surrey Police at 10.30pm reporting that a man had been stabbed.
It is believed that the suspect is the same man who was reported as acting aggressively, Counter Terrorism Policing South East said in a statement.
Assistant Commissioner, Neil Basu, head of Counter Terrorism Policing, said “Whilst this investigation is still in its infancy, it has hallmarks of a terror event, inspired by the far right, and therefore it has been declared a terrorism incident.
”This allows us to use all of the specialist capabilities available to establish the full circumstances of this attack.
“The investigation is being led by an investigation team based in the Counter Terrorism Policing, South East region, who are working closely with our colleagues in Surrey Police in order to build a better picture of what has occurred.”