Scotland Yard chief Sir Ian Blair told reporters "There can be no doubt that the 2012 Games…if the current threat scenario stays the same…will be a huge target, and we have to understand that and work on that basis."
A team of officers was already working full-time on security, six years ahead of the Games, he said.
His comments came after the Guardian newspaper quoted counter-terrorist officials as saying Britain had become the prime target for a resurgent and more structured al-Qaeda.
London was awarded the Olympics on July 6 last year, a day before four British Islamic suicide bombers blew themselves up on the capital's transport network, killing 52 people.
Police say they have foiled several other militant plots since then, including an alleged scheme to use liquid explosives to blow up planes in mid-air between Britain and the US.
As a close US ally with troops in Afghanistan and Iraq, Britain is a desirable target for al-Qaeda and like-minded groups that accuse the West of waging war against Islam.
The Guardian quoted intelligence chiefs as saying al-Qaeda had regrouped and grown more organised in Pakistan, despite a four-year campaign to track down its leaders.
It said experts feared Britain had never before been such a clear target, with groups plotting to conduct an atrocity on the scale of the September 11, 2001 attacks on the US that killed nearly 3,000 people.
Britain's traditional links with Pakistan made it a particularly easy target, with thousands of people travelling between the two countries each year, rendering it harder for the authorities to monitor security suspects, the Guardian said.