A knife-wielding terrorist wearing a fake suicide vest killed two people before being shot dead by police.
The attacker, who has not been named, was killed on London Bridge on Friday afternoon in full view of horrified onlookers.
Metropolitan Police Commissioner Cressida Dick confirmed two people died, and three others were injured.
She refused to confirm whether or not the suspect was known to police, but said: "We will be working as fast as we can to understand who this man is, where he comes from and whether there is anyone else who we need to find quickly who might be in touch with him."
NHS England confirmed one of the three injured victims was "critical but stable" while another is stable. The third victim has less serious injuries.
Prime Minister Boris Johnson praised members of the public "for their immense bravery" after it emerged bystanders helped tackle the suspect to the ground and disarm him.
Mr Johnson, called a meeting of the Government's emergency committee Cobra on Friday evening and cancelled his General Election campaigning events on Saturday. The Lib Dems have also decided to temporarily suspend campaigning.
Several people were stabbed by the knifeman before he was stopped in his tracks on London Bridge, which was the scene of the bloody massacre in summer 2017 where eight people were killed and 48 seriously injured.
Scotland Yard said the incident started at nearby Fishmongers' Hall, and that police had "bravely and professionally confronted the suspect" within five minutes of being called.
Footage on social media showed one man being urged to move away by armed officers before the suspect was shot at point-blank range, as another bystander - understood to be a plain clothes officer - could be seen carrying a large knife from the scene.
Another video appeared to show a person on a stretcher, surrounded by emergency services staff and vehicles, being given CPR by responders following the attack.
The members of the public who intervened have been widely praised, with mayor of London Sadiq Khan hailing their "breathtaking heroism".
Witnesses said the suspect appeared to be wearing a suicide vest but Neil Basu, the head of UK counter-terrorism policing, said the vest was a fake.
He said police were called at around 2pm on Friday to a stabbing "at a premises near London Bridge".
After being shot, the suspect in Friday's attack raised his arms towards his head before lying still. A second knife could be seen on the ground near his body.
Mr Basu told reporters: "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."
The London Ambulance Service declared it a major incident and one picture on social media appeared to show a body covered with a blanket.
The Independent Office for Police Conduct watchdog said it has launched an investigation into the police shooting of the London Bridge attacker which is standard for such incidents.
Witnesses described a scene of panic around London Bridge, moments after the 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.
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 told Sky News she saw "six people holding someone on the floor", adding: "At some point someone says 'oh, he has a knife', and we were like, oh my gosh, this guy is supposed to stab someone and people was running away.
"The police officers finally they 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."