Park Lane in central London has been closed to traffic after reports of a suspicious vehicle.

A Scotland Yard spokeswoman said: "Park Lane is closed at Marble Arch to Hyde Park Corner and a 200m cordon is in place.''

People are being cleared from Hyde Park. The road closure comes hours after the police bomb squad defused a carbomb in the city's theatre district.

Sky News is reporting that the two incidents are linked.

See Park Lane on map

In the early hours of this morning officers were called to The Haymarket in the city's West End following reports of a suspicious vehicle driving erratically.

See Haymarket on map

Eyewitnesses say the silver Mercedes crashed into bins outside a club in the popular tourist area before the driver ran off.

Police revealed that large containers of petrol, gas cylinders and nails were found in the car.

Deputy Assistant Commissioner Peter Clarke, head of Scotland Yard's counter-terrorism command, said: "It is obvious that if the device had detonated there could have been serious injury or loss of life.

"The threat from terrorism is real. It is here, enduring. Life must go on but we must all stay alert."

The police, who have launched a terrorism investigation, say the bomb could have caused massive devastation if it had exploded.

A spokesman said: "Police were called to reports of a suspicious vehicle parked in Haymarket, shortly before 2am this morning.

"As a precautionary measure the immediate area was cordoned off while the vehicle was examined by explosives officers.

"They discovered what appeared to be a potentially viable explosive device. This was made safe."

The incident came on Prime Minister Gordon Brown's second full day in 10 Downing Street.

This morning, before a Cabinet meeting, Mr Brown said: "The first duty of the Government is the security of the people and as the police and security services have said on so many occasions we face a serious and continuous threat to our country.

"We should allow the police to investigate this incident and then report to us. But this incident does recall the need for us to be vigilant at all times and the public to be alert at any potential incidents.

"I will stress to the Cabinet that the vigilance must be maintained over the next few days".