London could be the scene of a Mumbai-style terrorist “spectacular” if Islamist jihadists get their way, British security chiefs have warned. There is growing concern that a list of “soft” targets is being drawn up, and that weapons and explosives have already been smuggled into the country.

The Sun is reporting that the SAS has moved part of its anti-terror team to a forward base near London, amid concerns that a prolonged attack may be staged in that city. MI5 also referred to the Mumbai atrocity of 2008 as a comparison, in which coordinated bombings and shootings took place over four consecutive days, killing 174 and wounding a further 300.

Speaking to The Sun, a source said: “The nightmare scenario is they mount a spectacular attack at a high profile location. They may try to storm a building, take hostages, rig it with explosives or kill at will.”

The threat has caused the official ‘threat level’ to be raised to severe, increasing tensions in the city and prompting people to share warnings of an imminent bomb attack on the London Underground on social media and via text last night. The threat was dismissed as a hoax after the head of the British Transport Police took to Twitter, posting: “Social media contains lots of rumours regarding threats to tube network tomorrow. There is no specific threat so keep calm & carry on.”

However, Twitter user David O’Neill pointed out: “Must say though. If you raise the threat level to severe you can’t be shocked when people believe stupid rumours about attacks on the tube.”

Up to 500 British-born men are understood to have gone abroad in order to fight for the Islamic State (IS). Scotland Yard believes that up to 200 may have already returned, and are concerned that they will have been taught to carry out similar violent attacks on the streets of Britain.

Prime Minister David Cameron has indicated that he is considering granting the border patrol new powers to seize passports from suspected jihadists, and introducing of a ban on travelling abroad to fight with IS. A government source has told the media: “We are considering measures to keep the country safe in the face of an increased threat level from Islamist extremism.

“The areas include making it harder for potential foreign fighters to travel abroad by making it easier to remove their passports through additional temporary seizure powers at the border.

“We are also looking at stopping British citizens from re-entering the country if they are suspected of terrorist activity abroad.

“Previously, our range of powers to prevent return to the UK applied only to foreign nationals, dual nationals or naturalised citizens.”

Cameron is expected to deliver details of a package designed to inhibit terrorist activity to the Commons later today. However, it is not clear whether the package will have the support of Cameron’s coalition partners, the Liberal Democrat Party.

Former Liberal Democrat leader Sir Menzies Campbell told BBC Radio 4: “I think it’s rather difficult and it might well constitute illegality. To render citizens stateless is regarded as illegal in international law. To render them stateless temporarily, which seems to me the purpose of what’s being proposed, can also I think be described as illegal. At the very least it’s the kind of question that will be tested here in our own courts and perhaps also in the European Court of Human Rights.”