Britain may be faced with a major terrorist attack, a top security official said on Wednesday, as the the government received a severe setback in parliament in its effort to pass a key counter-terrorism law.

"There is another great plot building up again and we are monitoring this," warned Lord West, who advises British Prime Minister Gordon Brown on security matters.

"We have done all the things that we need to do, but the threat is building - the complex plots are building," West told the House of Lords, without elaborating.

His warning came soon after the House of Lords rejected a controversial security measure to extend detention without trial for terror suspects to 42 days. The counter-terrorism provision was in the pipeline after suicide bombers killed 52 rush-hour commuters in London in July 2005.

"The threat is huge. It dipped slightly and is now rising again within the context of 'severe'", he was quoted as saying by the 'Daily Telegraph'.

British Home Secretary Jacqui Smith dropped the counter-terrorism measure after it was rejected in the upper house but warned critics they were exposing the country to a greater risk.

The British daily reported two weeks ago that security sources believed terrorist activity was nearing "critical".

The threat level is at the "severe end of severe" according to sources who say the level of "ambient activity" among terrorist cells has increased in recent months and they are now operating at full stretch.

Counter-terrorism officials are particularly worried by a growing threat from within the Algerian, Somali and Yemeni communities in Britain along with the established threat from youths returning from the al-Qaeda heartlands on the Pakistan-Afghan border, the report said.