Britain's Foreign Secretary Philip Hammond says the killing of US journalist James Foley by a man speaking with an English accent was an "utter betrayal of our country".
Hammond's comments came amid growing concern in London that British passport holders who travel to fight in Iraq and Syria could return to commit attacks on British soil.
The Islamic State (IS) jihadist group posted a video of Foley's killing online Tuesday.
In it, a masked militant with a London accent executed the journalist, who had been missing since his capture in Syria in 2012.
The Sunday Times newspaper, citing unnamed senior government sources, reported that intelligence services MI5 and MI6 have identified the fighter suspected of killing Foley but the sources did not divulge the suspect's name.
"It is horrifying to think that the perpetrator of this heinous act could have been brought up in Britain," Hammond wrote in an article published in this week's Sunday Times.
"It is an utter betrayal of our country, our values and everything the British people stand for."
Hammond also warned that IS was "turning a swathe of Iraq and Syria into a terrorist state as a base for launching attacks on the West."
He added: "Unless they are stopped, sooner or later they will seek to strike us on British soil."
Britain has ruled out sending ground troops into Iraq to fight the jihadists.
But it is taking steps including sending equipment to Kurdish peshmerga fighters to help combat them, as well as offering humanitarian assistance.
The government is under pressure at home to step up action to prevent the radicalisation of young Muslims in Britain, some of whom then travel abroad to fight.
More than 500 Britons have travelled to Syria or Iraq to fight with jihadists in the last few years, according to the intelligence services.
Home Secretary Theresa May indicated Saturday that she could invoke fresh powers to combat radicalisation.
But the main opposition Labour Party has accused the government of not moving quickly enough or providing enough specifics on what it intends to do.
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