Police said three men were involved in the attack, of whom one was dead and two others were injured, one of them seriously.
The attack took place in Woolwich, southeast London near a military barracks and the dead man was a British soldier, who was beheaded by the knife-wielding attackers, British media reported.
One of the men involved in the attack, was filmed at the scene by local ITV News with a bloodied meat cleaver in his hand.
The man, who was dressed in a grey hooded jacket and black woolly hat then apologised for the fact that “women had to witness this today. But in our land our women have to see the same. You people will never be safe. Remove your government, they don't care about you."
The attacker, who spoke clear English with a London accent, is then seen walking towards his victim, lying in the street.
The violent scene was far from over as moments later, the two attackers were faced with intervening armed officers, who gunned down the suspects.
The incident occurred some 200 yards from the Royal Artillery Barracks, neighbouring to Woolwich Common, the historical home of the Royal Artillery.