Explosives officers on Friday dealt with a suspected bomb in a vehicle parked near Piccadilly Circus in central London, making it "safe," police said.
Police did not offer any details about what they called a "potentially viable explosive device" or how they dealt with it.
Terrorist police were investigating after explosives officers were called to The Haymarket road shortly before 2 a.m. (0100GMT), police said in a statement.
"They discovered what appeared to be a potentially viable explosive device," police said. "This was made safe."
Britain's Press Association quoted an unidentified police official as saying: "The indications that we have got so far are that it was certainly a big device."
Sky News showed images of a blue tent-like cover that it said forensic officers had placed over the vehicle, which was parked outside an American Express foreign exchange office.
The station cited witnesses as saying doormen from a nearby nightclub had reported that someone had crashed a blue Mercedes sedan into garbage bins and ran away.
One witness said he saw a gas canister - which was green, the color for propane - in the backseat of the vehicle along with a large number of nails on the car's floor, Sky reported.
Jack Straw, who was named justice secretary by Britain's new prime minister, Gordon Brown, said ministers had been informed of the incident and called it "very saddening," but added "these things happen."
The area around the vehicle was cordoned off as a precaution on Friday morning while explosives officers examined the vehicle. London transport officials said the Piccadilly Circus Underground train station was closed.
The alert comes a week before the second anniversary of the July 7 London bombings, in which four British Muslim suicide bombers killed themselves and 52 bus and subway passengers.
For more than a year, the government has held the country's terrorist threat level at severe - which means a terrorist attack is highly likely.