Police arrested the London Bridge attack ringleader eight months before the atrocity but let him go – even after finding terrorist propaganda that could have seen him jailed.

A report by the Intelligence and Security Committee of Parliament revealed that Khuram Butt could have been “disrupted” over allegations of fraud in 2016.

He was already known for his links to hate preacher Anjem Choudary’s al-Muhajiroun extremist group and MI5 intelligence indicated he was “supportive of Isis”.

Counterterror police investigated Butt in October 2016 over suspected bank fraud and “discovered files that police considered ‘may successfully be used in a prosecution under the Terrorism Act’”, the report said.

But MPs said the issue “was not explored further” due to reasons that were redacted for national security reasons.

The report also found that security services missed a potential opportunity to prevent the Manchester bombing by intercepting Salman Abedi when he returned from Libya days before the blast, which killed 22 victims and injured hundreds more as they left an Ariana Grande concert on 22 May 2017.

MPs found that Abedi and his brother Hashem may have been radicalised by their father, who supported rebels in the Libyan civil war. However, no members of the family were referred to the Prevent scheme.

Abedi was not monitored during trips to Libya, despite appearing on MI5’s radar multiple times over links to other terrorists who were under investigation, and visiting an extremist in prison, the report found.

He became a “subject of interest” in 2014 and intelligence that he supported Isis was received, but the report said MI5 did not actively investigate him partly because of the “view that he would not pose a threat in the UK”.

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Giving evidence to the committee, an MI5 agent admitted that Abedi should have been placed under “ports action” procedures, which would have monitored his travel out of and into the country.

They added: “We cannot see it would have made a difference because of the timeline that few days window would have given us, but in principle it was the right thing and it should have happened.”

Despite his multiple extremist links, he was not deemed sufficient risk to be put under priority investigation, and his case was due to be reviewed when he blew himself up among crowds at Manchester Arena.

The committee said that security services also failed to “join the dots” on the Westminster attacker Khalid Masood, who had known links to al-Qaeda supporters after converting to Islam in prison.

MPs also identified a “litany of errors” ahead of the September 2017 Parsons Green attack, when an Iraqi asylum seeker attempted to bomb a Tube train but his device only partially exploded.

Ahmed Hassan had told border officials he had been forced into an Isis training camp in his home country and indoctrinated as a child, but was not investigated by MI5.

Known to be suffering from mental health issues, Hassan was also under the Channel anti-radicalisation scheme, part of the government’s Prevent strategy to identify and provide support to individuals who are at risk of being drawn into terrorism.

The committee called for a review of Prevent’s role in the case.

Like Abedi, Hassan managed to obtain materials to make the powerful explosive triacetone triperoxide (TATP), and MPs concluded that the system for regulating and reporting purchases of bomb ingredients were “hopelessly out of date”.

Parsons Green timeline - Ahmed Hassan found guilty of attempted murder

They also called for the government to consider increasing the monitoring of vehicle hire in the wake of the Westminster, London Bridge and Finsbury Park attacks.

MPs recommended widening a programme to limit who can visit extremists in prison outside the most dangerous offenders so liaisons like Abedi’s would be caught, and raised concern that new separation centres could allow terrorist “networking”.

The report said that while information sharing between MI5 and counter terror police had increased, it still required “continuous improvement”.

MPs said MI5’s systems had also “moved too slowly” in reviewing Abedi’s case, but noted that agents were belatedly categorising more than 20,000 people who have appeared on its radar into risk bands.

Despite mounting international pressure on internet firms to prevent their platforms being used to disseminate terrorist propaganda, they were still found to be providing “safe havens” for extremists.

The committee suggested that “action which affects the communications service providers’ profits will hit home harder than an appeal to them to ‘do the right thing’”.

Dominic Grieve QC, the chair of the committee, said it had previously made similar recommendations over past attacks.

“It has been striking how many of the issues which arose in relation to the 2017 terrorist attacks had been previously raised by this committee in our reports on the 7/7 attacks and on the killing of Fusilier Lee Rigby,” he added. “We have previously made recommendations in all of these areas, yet the government failed to act on them. The lessons from last year’s tragic events must now result in real action.”

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UK Counter Terrorism Policing said officers would carefully study the report’s findings and recommendations, with the 36 victims of the attack and their families “foremost in our minds”.

Since the Westminster attack in March 2017, police and MI5 have foiled 13 terror plots. There were 351 terror arrests and a record 90 convictions in the year to June.

There are currently more than 700 live investigations involving 3,000 individuals assessed to pose the highest threats, with another 20,000 individuals who remain of concern.

Assistant Commissioner Neil Basu, the head of UK counter terror policing, said: “There will be further scrutiny and examination into the circumstances of these attacks, including coronial inquests and other potential criminal proceedings, which may preclude us for the time being from commenting publicly to some specific points raised.

“In the meantime we would like to reassure the public that ever since the attacks of last year we have sought to learn from what happened before, during and afterwards, and improve our wider operating model and ways of managing and mitigating the risk from terrorism.

“We will not let the terrorists who carried out these appalling attacks succeed in scaring and dividing us. Working ever more closely with the security service and learning our lessons, we will do everything we can to reduce the chances of this happening again.”

The home secretary said police and MI5 had undertaken their own series of “rigorous reviews” and the government would formally respond to the report.

“We have updated our counter-terrorism strategy, introduced new legislation to allow threats to be disrupted earlier and have increased information sharing with local authorities,” Sajid Javid added.