At least three people were injured in what the witnesses described as a deliberate crash. The area was the site of a terror attack in March 2017 when a man ploughed a car into crowds, killing four people.
A man detained on Tuesday on suspicion of deliberately targeting pedestrians outside Britain's parliament is Salih Khater, a British citizen of Sudanese origin who was not previously known to intelligence agencies, a European security source said.
Police arrested a 29-year-old man after he appeared to drive his car at cyclists and pedestrians before ramming his car into barriers.
"It is still being treated as terrorism but the motive is unknown as yet," said a European security source. Police have not given any further details about the man's identity.
The British citizen originally came from another country, UK Security Minister Ben Wallace said. The crash appeared to be the second terrorist attack at the building in just under 18 months
At least three people were injured. The driver, a 29-year-old man, was arrested by armed officers moments later. He was not cooperating with detectives, the British police counter-terrorism chief said.
"Given that this appears to be a deliberate act, the method, and this being an iconic site, we are treating it as a terrorist incident," Metropolitan Police London Assistant Commissioner Neil Basu told reporters.
In March 2017, Khalid Masood, 52, killed four people on nearby Westminster Bridge and stabbed an unarmed police officer to death in the grounds of parliament before being shot dead. It was the first of five attacks in Britain last year that police designated as terrorism, three of which used vehicles as weapons.
"The threat to the United Kingdom from terrorism remains severe," British Prime Minister Theresa May said in a statement.
Basu said the suspect in Tuesday's incident was in custody but not cooperating. He said the man had not been formally identified but was not believed to be known to security forces.
The BBC, citing unnamed sources, said the man was from the Birmingham area and known to police, although not to intelligence or counter-terrorism agencies.
TRT World's Sarah Morice has the latest from London.
No other suspects
Basu said there were currently no other suspects from the scene of the incident, and no indications of further danger.
The police said detectives searched two properties in Birmingham and one in Nottingham over the car crash at parliament.
Police said a silver Ford Fiesta had driven through a group of cyclists and pedestrians during the morning rush hour before hitting a barrier in front of the Houses of Parliament at 7:37 am (0637 GMT).
Video footage showed the vehicle making an illegal turn before veering across the road and into a security lane leading to parliament before smashing into the protective barrier as two police officers jumped to safety.
The man was detained on suspicion of terrorist offences and no weapons were found, Basu said.
Two people were taken to a hospital and one woman was still receiving treatment for serious but not life-threatening injuries.
Armed officers swarmed the scene and sealed off a large area around parliament that is usually bustling with tourists and government workers.
"I saw the cyclists, injured cyclists. I don't know if he's hit these people or if they've just dived to escape," bystander Jason Williams told reporters. "It didn't swerve, there was not another car going behind him. It looked like it was planned."
Images shot by a Euronews journalist showed police pointing their guns at the vehicle shortly after the crash. Footage on social media showed a man being led away in handcuffs.
May, who like other lawmakers is on holiday during parliament's summer recess, urged Britons to remain vigilant but to carry on as normal.
"For the second time in as many years the home of our democracy, which is a potent symbol of our precious values of tolerance and freedom, has just witnessed terrible scenes just yards from its door," she said in a statement.
Britain is on its second-highest threat level, "severe", meaning an attack is considered highly likely.
US President Donald Trump, who has previously spoken out about security issues in London, tweeted, "These animals are crazy and must be dealt with through toughness and strength."
Cordons around parliament began to be lifted about six hours after the incident and Westminster Underground station, close to parliament, was reopened. However, streets immediately surrounding the scene remained closed off.