The news raises questions about the police's judgment and increases pressure on Prime Minister Theresa May, who three days before a national election is facing criticism for overseeing cuts to police during her years as interior minister.
In Britain's third Islamist attack in as many months, three men on Saturday rammed a van into pedestrians on London Bridge before running into the Borough Market area, where they slit throats and stabbed people indiscriminately. Seven people were killed and dozens wounded.
All three attackers were shot dead by police, who made at least a dozen arrests in eastLondon on Sunday and carried out further raids on Monday.
Police on Monday named two of the attackers and said they were trying to identify the third. One, 27-year-old Khuram Shazad Butt, was a British citizen born in Pakistan who had already been investigated by police and Britain's domestic spy agency MI5.
"However, there was no intelligence to suggest that this attack was being planned, and the investigation had been prioritised accordingly," police said.
Another attacker, 30-year-old Rachid Redouane, went by the alias Rachid Elkhdar and claimed to be Moroccan or Libyan, police said. He and Butt lived in the same area of eastLondon.
One of Butt's neighbours, Ikenna Chigbo, told Reuters he had chatted with Butt - also known as "Abz" - just hours before the attack on Saturday and said he appeared "almost euphoric".
"He was very sociable, seemed like an ordinary family man. He would always bring his kid out into the lobby".
Another neighbour, Michael Mimbo, told Reuters that Butt supported the north London football team Arsenal. One of the dead attackers has been pictured wearing an Arsenal shirt.
Mimbo said Butt had grown a longer beard and worn traditional Islamic dress more often over the two years he had known him, but showed no sign of radicalisation.
"As an individual he was a cool, calm guy. One of my friends would let Abz babysit his daughter," Mimbo said.
Police said on Monday they had released all 12 people arrested in the neighbourhood on Sunday without charge. However, police were investigating what appeared to be Molotov cocktails in the back of the van,
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