Detectives said the suspected conspirators were arrested in dawn raids across the city of Birmingham on "suspicion of the commission, preparation or instigation of acts of terrorism".

Uniformed officers searched and sealed off twelve addresses in Birmingham, one of the most ethnically diverse cities with a large Muslim population.

The country has been on its second highest alert level since four Britons killed 52 people in London in July 2005 in Western Europe's first Islamist suicide bombings.

Security experts said the suspected plot was a departure from the mass-fatality attacks on transport networks and showed Britain was on the frontline of al Qaeda-style attacks.

"It certainly seems to confirm Britain is particularly vulnerable to al Qaeda-style attacks because of the historic links to Pakistan and the Pakistani community here," said Shane Brighton, a terrorism expert at London think-tank Chatham House.

"The suggestion is that there is a higher level of risk in the UK from those Pakistani-linked groups that there is elsewhere in Europe. We may well be on the forefront of this."

Media reports, citing unnamed sources, said police and domestic spy service MI5 had stopped a major terrorist plot in the latter stages of planning, or near fruition.

Sky TV quoted sources as saying the intent was to mimic the abductions and beheadings of Westerners carried out by militants in Iraq and post a video of the killing on the Internet.

Such a murder would be similar to the fate of Briton Ken Bigley, who was kidnapped and later beheaded by al Qaeda's then leader in Iraq Abu Musab al-Zarqawi in 2004.

A defence source confirmed to Reuters the suspected target was a Muslim serving in the British military. A police source said the suspected plot would not have caused mass casualties, but would have involved a new terrorism tactic.

Neither the police nor the government would confirm the reports.

"It is unhelpful of the media and potentially damaging to the investigation or any future court cases to speculate on the details of this investigation," West Midlands police said in a statement, adding there was no "specific threat" to the area.