Eyewitness video filmed at 2:14pm showed a line of police cars blocking Streatham High Street, where the incident took place at around 2pm.
Police said on Twitter a man with a knife had been shot dead after stabbing "a number of people." They later confirmed two people had been injured in the incident.
"The incident has been declared as terrorist-related," the Metropolitan Police confirmed.
Armed police cordoned off the area, on the main shopping street in Streatham, a busy residential district south of the River Thames. Police said people should avoid the area.
Several videos of the scene were posted on Twitter, but not verified by Reuters. \