PRIME Minister Tony Blair said it was "reasonably clear" the blasts were a terrorist attack designed to coincide with the G8 summit in Gleneagles.

As he prepared to fly back to London he said in a special TV address to the nation: "It is particularly barbaric this has happened on a day when people are meeting to try to help the problems of poverty in Africa and the long term problems of climate change and the environment.

"Just as its reasonably clear this is a series of terrorist attacks, it's also reasonably clear, that it is designed and meant to coincide with the G8."

Mr Blair said it was the will of all the leaders of the G8 that the summit should continue. Each of the countries around the table had some experience of the effects of terrorism.

He added: "It's important that those engaged in terrorism realise that our determination to defend our values and way of life is greater than their determination to cause death and destruction to innocent people."

An Islamist website has posted a statement - purportedly from al-Qaeda - claiming it was behind the attacks.

Share prices dropped. The FTSE 100 share index tumbled 168 points, or 3.2 per cent, to 5,061. In France, Germany, Holland and Spain indexes all fell more than 2.5 per cent.

Celebrations to mark tomorrow's homecoming of the successful London 2012 Olympic bid team were cancelled.

New Olympics minister Tessa Jowell said: "It would be completely inappropriate in view of this appalling tragedy."

London was paralysed by the series of explosions which began shortly before 9.00am. Police confirmed that at least two people were killed at Aldgate. Some of the wounded were critically hurt. A doctor said some victims had lost limbs.

Scotland Yard said there were explosions at six London Underground stations. A bus, thought to be a double-decker tourist bus, was blown apart in Tavistock Place.

People with faces blackened by smoke stumbled out of underground stations. Fire alarms and sirens on scores of emergency service vehicles sounded across Central London.

Hospitals launched an emergency plan, called in extra staff, cancelled all routine work and concentated on dealing with blast victims.

Eyewitnesses described how a bomb exploded in a carriage on a Piccadilly Line train with a massive bang.

Some reports said there was little panic but others talked of people screaming, crying and choking in billowing smoke.

All London underground and bus services were halted.

Police advised people to stay in their homes and offices for their own safety.

Home Secretary Charles Clarke said the explosions had caused "terrible injuries".