Home Secretary Theresa Mays said the decision was made by the Joint Terrorism Analysis Center.
"The increase in the threat level is related to developments in Syria and Iraq where terrorist groups are planning attacks against the West. Some of these plots are likely to involve foreign fighters who have traveled there from the UK and Europe to take part in those conflicts."
Despite the increased possibility of an attack, the Home Office acknowledged "there is no intelligence to suggest that one is imminent."
Prime Minister David Cameron characterized the Islamic State as a "greater and deeper threat to our security than we have known before," especially given the flow of at least 500 foreign fighters from the U.K. "to fight in Syria and potentially Iraq," with the possibility that they may return to the U.K. to launch attacks.
Without providing specifics, Mays noted the British government has "taken steps to amend our powers and increase our capabilities for dealing with the developing terrorist threats we face."
Scotland Yard chief Sir Bernard Hogan-Howe said his force is prepared for any potential mass return of British jihadis.
The British government urged its citizens "to remain vigilant and to report any suspicious activity to the police" while reassuring the public "we will take the strongest possible action to protect our national security."