Video report by ITV News Security Editor Rohit Kachroo
The man shot dead by police in Streatham can be named by ITV News as Sudesh Amman, who was released from prison just a week ago after being imprisoned for terror offences.
Amman, 20, served half of his three year prison sentence for sharing graphic terrorist videos and stockpiling instructions on bomb making and knife attacks.
ITV News can also reveal Amman was under police surveillance when he carried out his attack on Streatham High Road in south London at 2pm on Sunday, injuring three people.
Amman, of Harrow, north-west London, was jailed aged 18 in 2018 after he pleaded guilty to having and distributing terrorist documents.
Witnesses say the man shot dead by police was carrying a machete and had metal canisters attached to his chest. Police confirmed this was a hoax device.
Armed police arrived at the scene just minutes after the attack, which saw two people stabbed while another person suffered cuts believed to from broken glass. One of the victims is in a life-threatening condition.
In a statement, Metropolitan Police Deputy Assistant Commissioner Lucy D'Orsie said: "Three victims have been taken to south London hospitals. One man is being treated as life-threatening, one woman has non-life threatening injuries and another woman has minor injuries.
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"My thoughts are with the victims and their loved-ones at this time.
"The situation has been contained and officers from the Met’s Counter Terrorism Command are now leading an investigation into the incident.
"The incident was quickly declared as a terrorist incident and we believe it to be Islamist-related."
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Unconfirmed reports suggest three shots were fired during the incident on Streatham High Road.
A student from Streatham, who did not want to be named, claimed to have witnessed the shooting.
"I was crossing the road when I saw a man with a machete and silver canisters on his chest being chased by what I assume was an undercover police officer - as they were in civilian clothing," the 19-year-old said.
"The man was then shot. I think I heard three gun shots but I can't quite remember. After that I ran into the library to get to safety.
"From the library I saw a load of ambulances and armed police officers arrive on the scene."
He said people began running into nearby stores after the incident.
"We were all informed to stay in buildings by armed police, until we were evacuated," he said.
It is understood people including children took shelter in nearby shops during the incident, with police later telling shops to close for the day.
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Richard Mustonen-Smith, 59, a response pastor for Ascension Trust who has lived in the area his whole life, said: "My grandson was in the Odeon and they got told to go out the back because there was a bomb.
"They got them to go out of the back of the cinema. They were there to watch a film.
"When it's a member of your family so close to you, you don't expect it. You're always worried about your family being on the streets but this is even worse."
Boris Johnson tweeted his thanks to the emergency services for their work.
"Thank you to all emergency services responding to the incident in Streatham, which the police have now declared as terrorism-related," the Prime Minister wrote.
"My thoughts are with the injured and all those affected."
While Home Secretary Priti Patel said on Twitter that she was being kept updated by police.
"My first thoughts are with the victims, our brave police and emergency services and their families," she wrote.
Commenting on the incident, London Mayor Sadiq Khan said: "I am in close contact with the Met Commissioner and local representatives, and want to thank our police, security and emergency services staff for their swift and courageous response.
"They truly are the best of us.
"Terrorists seek to divide us and to destroy our way of life - here in London we will never let them succeed."