Video report by ITV News Security Editor Rohit Kachroo
The London Bridge killer was a convicted terrorist released on licence, ITV News has confirmed.
Two people were killed after a terrorist carried out a number of stabbing attacks in the busy office and entertainment area on Friday afternoon, Metropolitan Police Commissioner Cressida Dick said.
Three other bystanders are being treated in hospital, with one understood to be in a "critical condition".
The prime minister chaired an emergency COBRA meeting on Friday evening in response to the attack.
The Met Police earlier said the attacker had been shot dead.
Cambridge University, which was holding an event nearby, has said it is "gravely concerned" for the welfare of its staff, students and alumni whom it believes may have been caught up in the attack.
Ms Dick said the investigation is "very fast moving and dynamic" with officers working to identify the attacker and his motive.
Heroic members of public tackled attacker before police arrived
Members of the public who were near the scene of the attack have reported seeing police detain a suspect, who is believed to have been wearing a mock explosive device.
Tom Gray, a tour guide who was working in London, helped apprehend the suspect. He told ITV News how he "stamped on the wrist" of the attacker, attempting to free the knife from his grip.
He claimed the attacker had two knives, one taped to his wrist. He was one of several members of the public who rushed to respond to the attack.
Suspect wearing 'hoax device' shot dead by armed police
Neil Basu, the Met's assistant commissioner for specialist operations said, the suspect, who was shot by police, was wearing a hoax device.
Speaking outside New Scotland Yard, Mr Basu announced: "At approximately 2pm today, police were called to a stabbing at a premises near London Bridge.
"Emergency services attended including officers from the City of London Police and Metropolitan Police.
"A male suspect was shot by specialist armed officers from City of London police and I can confirm that this suspect died at the scene."
He continued: "Due to reports that the suspect might have had an explosive device specialist officers attended the scene.
"However, I can confirm at this time we believe a device that was strapped to the body of the suspect is a hoax explosive device."
On Friday evening, the area remained on lockdown as police continued their investigation into the attack.
The public were warned to expect the area to be closed for some time to allow officers to ascertain what happened and to gather evidence.
What do we know about the attack and how it unfolded?
Emergency services were called to the scene at Fishmonger's Hall at 1.58pm and closed off both sides of the bridge.
City of London police officers tackled the suspect by 2.03pm, the Met's Cressida Dick confirmed.
London Ambulance Service said it sent several vehicles to the scene, distributing casualties between two London hospitals.
Video appears to show armed police pulling away a member of the public who had been wrestling with a man on the ground.
Seconds later, a firearm appears to be discharged.
Buses and other vehicles have been abandoned on the bridge and a cordon stretching back towards Borough Market is in place.
ITV News Correspondent Sejal Karia was at Cannon St, north of the scene, and reported seeing dozens of officers, some of them on horseback.
One officer told her they were dealing with a "major incident".
Nurse Jackie Bensfield, 32, described how she asked to be let off a bus on London Bridge after she heard "five or six" gunshots.
Ms Bensfield, who was on her way home from work, said she exited the bus and "ran like hell" to escape the shots.
Connor Allen, who was in his van on the bridge when it was evacuated said: "Everyone just started running, you heard these pops and that was it. We just got out the van and started running."
Election campaigning suspended as PM praises 'brave' first responders
The Conservatives, Labour and Liberal Democrats have cancelled all their campaigning for the General Election on Saturday.
Prime Minister Boris Johnson paid tribute to "the extraordinary bravery of those members of the public who physically intervened to protect the lives of others and for me they represent the very best of our country and I thank them on behalf of all of our country".
He added: "Anybody involved in this crime and these attacks will be hunted down and will be brought to justice."
He later described the deaths of two members of the public at London Bridge as "heartbreaking" and said there would be an "enhanced" police presence on the streets following the attack
Mr Johnson said he had "long argued" that it is a "mistake to allow serious and violent criminals to come out of prison early and it is very important that we get out of that habit and that we enforce the appropriate sentences for dangerous criminals, especially for terrorists, that I think the public will want to see".
Speaking in Downing Street ahead of the Cobra meeting, Mr Johnson declined to say whether the individual was known to the security services or the police before the incident took place.
Labour leader Jeremy Corbyn tweeted: "Shocking reports from London Bridge. My thoughts are with those caught up in the incident. Thank you to the police and emergency services who are responding."
Jo Swinson, leader of the Liberal Democrats, praised "brave police who are dealing with it with professionalism". She said her thoughts are with those affected.
London Mayor Sadiq Khan thanked members of the public who risked "their own safety this afternoon".
Witness Cecilia Sodero was on the top deck of a bus going over London Bridge when she heard shots and saw a man lying on the ground with a "very scary device, like a bomb device".
She continued: "The police officers finally removed the knife. But then what happened is when they shot the guy, the guy is still alive, and they shoot and he's trying to pull the black jacket off so I was able to see the vest that he was wearing.
"And it seems like a very scary device, like a bomb device, at that point we just ran away from the bus, crossing the bridge in the other direction.
"The whole thing was very scary, to be honest."
ITV News Security Editor Rohit Kachroo, who was at London Bridge, said pubs and bars were being evacuated and police helicopters were hovering close to the scene.
A witness who works in a stall in Borough Market, said it looked like a minor incident at first.
Laurence Verfaillie saidL "I thought it was a car crash, it looked like it was pretty minor.
"Suddenly a trader told me the ice cream seller on the bridge has run away yelling there has been an incident.
"Another trader said police were looking for someone.
"Suddenly people were taking refuge in our shop before we got told to leave.
"We still think about what happened last time."
One video shows what appears to be police pulling equipment out of a vehicle nearby.
Those in the video can be heard saying: "They've actually got guns out. They've got the guns out."
The incident comes weeks after the UK's terrorism alert level was downgraded.
It was the first time the threat of an attack has been set at Substantial since August 2014.
Eleven people were killed when three attackers launched a knife rampage around the popular central London food and entertainment area.