MI5 is carrying out its biggest operation since the Second World War with almost all of its 3,800 staff mobilised for the London Olympics which will take place amid rising concerns over the possibility of terrorist attacks.

Annual leave will be restricted at the agency and agents who would have been involved in counter-espionage have been moved to terrorism duties.

Although there is said to be "chatter" among jihadist groups about the Olympics, security officials have refused to discuss if cogent plots have been discovered. Senior sources say that in the last major sporting event seen as a target, the Commonwealth Games in India, planning by terrorist groups began around three months before the event started.

The Independent understands the Security Service has installed a new monitoring and intelligence gathering system to ensure safety of the Games. This includes security checks on more than 540,000 people, monitoring militant groups and also liaising with foreign intelligence services.

All leave for security agents during the Games has been cancelled or has been heavily restricted.

The new system developed by MI5 for the Olympics, including computarisation, details of which are classified, has been in place since last October. It is deemed to have been highly successful, and will be kept in use after the Games have finished.

Security checks on those attending the Games, under the overall control of the Home Office, will be carried out for the London Organising Committee of the Olympic and Paralympic Games (LOCOG) and include the athletes, their families, officials, the media and workers. The company G4S, which has the contract for providing security, is now sifting through 50,000 job applications all of which must be vetted.

While MI5 says it does not need extra government funding for its Olympic security operations, with the figure needed having been included in its previous funding round, the costs to the public have risen from the original estimate of £600m to £1bn.

One of reasons for this was a under-estimation made by LOCOG of the number of staff needed for the 34 Olympics venues. The original figure of 10,000 has now been raised to 20,000.

MI5's role would be to specifically focus on those who pose a terrorist threat to the event.

When it comes to foreign nationals, for example, members of the regimes of Syria or Iran,who may be accused of human rights abuse but are not seen as a risk to national security will not be banned under the Security Service recommendations. The Home Office can, however, refuse such people visas on grounds that their "presence in the UK would not prove conductive to the public good."

Last week, during the killing spree of Islamist Mohammed Merah in France, the head of the UK Security Service gave a briefing in Downing Street on the preparations that are being made for the Olympics.

In what is believed to be the first occasion he has addressed the full cabinet, Jonathan Evans laid out the scenario of threats that face the Games and the counter-action which is now being taken. MI6, GCHQ – the government's electronic listening base – the police's anti-terrorist and special branches are all currently engaged in a huge trawl of intelligence.

Around 13,500 military personnel, 4,000 more than are currently serving in Afghanistan, will be deployed on the security operation. The Royal Navy's biggest ship, the helicopter carrier HMS Ocean, will be moored on the Thames estuary with Royal Marines on board, while HMS Bulwark will be present for events around Weymouth.

Surface-to-air missiles will be placed around the capital, which will also see the arrival of an SAS unit from Hereford. MI5 expects the numbers of reports of suspicious activity will rise as the start of the Olympic Games draws nearer. Many of these reported threats may turn out to be not credible. But there may be no time, say officials, to perform the normal security process of watching and tracking before taking action because of risks entailed in waiting.

The police may have to take action immediately, as they did when six Algerian street cleaners were arrested on the Pope's visit in 2010, after the cleaners were overheard allegedly musing about "doing something".

They were released without charge.

3,800 MI5 staff to be mobilised

£1billion cost of Olympic security operations

20,000 staff needed for the 34 Olympic venues

120 heads of state to visit UK