Khuram Shazad Butt, 27, was investigated by officers in 2015 but they found no evidence of attack planning and he was “prioritised in the lower echelons of our investigative work”, Britain’s top counter-terrorism officer said.
Pakistani-born British citizen Butt and Rachid Redouane, who claimed to be Moroccan-Libyan, were two of the three men who carried out the deadly assault in which seven people died and dozens more were injured on Saturday night.
Officers at Scotland Yard are working to identify the third accomplice, while 12 people who were arrested in east London in the wake of the murderous rampage have been released without charge.
Assistant Commissioner Mark Rowley said Butt was known to police and MI5, but because the probe into him did not reveal evidence of attack planning or other serious offending he was prioritised accordingly.
The disclosure means that perpetrators in all three of the terrorist outrages to hit Britain this year had at some point appeared on the radar of authorities.
Butt, who is thought to have also gone by the name Abu Zaitun, was known to neighbours by the nickname “Abs/z” and was allegedly an associate of radical hate preacher Anjem Choudary.
Mohammed Shafiq, chief executive of the Ramadhan Foundation, said Butt called him a “Murtad” - traitor in Arabic - when he confronted Choudary about his support of terrorism days after the murder of Lee Rigby in 2013.
The father-of-two, who reportedly appeared on Channel 4 documentary The Jihadis Next Door, was also reported to the anti-terror hotline in 2015 for showing signs of “extremism or radicalisation”, Mr Rowley said.
Defending the actions of the security services, he added: “At any one time MI5 and police are conducting around 500 active investigations, involving 3,000 subjects of interest.
“Additionally, there are around 20,000 individuals who are former subjects of interest, whose risk remains subject to review by MI5 and its partners.”
London Mayor Sadiq Khan said questions would need to be asked about what the police knew of Butt but he told BBC1’s Breakfast: “The responsibility for the attacks on Saturday night lies with the terrorists.”
Mr Khan also renewed his criticism of cuts faced by the Metropolitan Police under the Tories, saying that under a new Theresa May government there would be fewer police officers and adding: “There’s no doubt that fewer police officers means we are in more danger.”
And asked about President Trump’s attack on him in the wake of the London Bridge atrocity, he said he had always thought that the state visit invitation to the president was inappropriate and said his view had not changed.
Security sources in Ireland confirmed Redouane, 30, married a British woman in Dublin in 2012 and lived in the Rathmines area of the city.
He also used the name Rachid Elkhdar, and claimed to be six years younger.
It is not clear when he entered the Republic or how long he stayed but it is believed he used Irish jurisdiction to get a European Union permit which allowed him to be in the UK.
An Irish security source described the murderer as having “extensive immigration history related to the UK”.
Both killers lived in Barking, east London, and it is not yet known how the two men knew each other - with work to understand more about the trio and their connections still under way.
At around 1.30am on Tuesday counter-terror officers raided a property in Ilford, east London. No arrests had been made as part of the search, the force said.
During the eight-minute long slaughter, the three knifemen ploughed into pedestrians on London Bridge using a van and went on to stab people in Borough Market with 12-inch knives.
The attackers, wearing fake suicide vests, were shot dead by eight officers after police unleashed a hail of 50 bullets upon them.
Thirty-six people remain in London hospitals, with 18 in critical care.
As the nation collectively grieves following the third terror attack to hit the country in three months, a minute’s silence will be observed on Tuesday at 11am in memory of the victims.
Londoner James McMullan, 32, and 30-year-old Canadian Christine Archibald were the first victims killed in the attack to be named.
An unnamed French national also died in the rampage, with two others missing, the French foreign affairs minister Jean-Yves Le Drian said.
Scotland Yard said one person is still believed to be missing, and that family liaison officers have been deployed to support the victims’ loved ones.
The Islamic State terror group, also known as Daesh, has claimed the London Bridge rampage, while the attack has sparked fears Britain is in the grip of a spate of copycat incidents.
Detectives would like to hear from anyone with information about the men, particularly places they may have frequented and their movements in the days and hours before the attack.