When a noxious cloud sent shoppers running in panic on the streets of London, emergency services feared the capital was under chemical attack.

Wearing specialist breathing equipment, fire crews sealed off the area in Soho on Monday afternoon and began a three-hour hunt to find the source of the eye-watering stench while a hazardous area response team stood by, fearing the worst.

Three streets were closed and people evacuated from the area as the search was carried out. After locating the source at about 7pm, emergency crews smashed their way into the Thai Cottage restaurant in D'Arblay Street only to emerge with a 9lb pot of smouldering dried chillies.

Baffled chef Chalemchai Tangjariyapoon, who had been cooking a spicy dip, was amazed to find himself at the centre of the terror scare.

"We only cook it once a year - it's a spicy dip with extra hot chillies that are deliberately burned," he said.

"To us it smells like burned chilli and it is slightly unusual. I can understand why people who weren't Thai would not know what it was but it doesn't smell like chemicals. I'm a bit confused."

Staff at the restaurant had already been evacuated by the time the dip was discovered. Supranee Yodmuang, a Thai Cottage waitress said: "The first we knew about it was at about 4.30 in the afternoon when the fire brigade came. They led us out to where the streets had been cordoned off and we waited there for about three hours.

"They said there was a chemical smell and I remember saying to someone that maybe the smell was the chillies but then we said that was not possible.

"When we came back at 7.30pm we saw the door had been smashed and there were fire brigade and police waiting outside. I was a bit scared but they were very nice about it."

The spicy dip, which is a speciality at the restaurant, is made from charred chillies, garlic flakes, dried shrimps, palm sugar, shrimp paste, tamarind and vegetable oil.

The restaurant, which has been open for 17 years, is considering putting up posters to warn the public during future chilli cooking sessions.