Britain raised its national threat level on Monday to severe, meaning an attack is seen as highly likely, after declaring that a taxi explosion outside a hospital in Liverpool on Sunday was a terrorist incident.

Interior minister Priti Patel said the blast in the northern English city was the second fatal incident in one month following the stabbing to death of lawmaker David Amess.

British police said earlier on Monday that the Liverpool blast killed one passenger who is believed to have made the explosive device and carried it into the taxi. They are treating it as a terrorist incident.

"Our inquiries indicate that an improvised explosive device was manufactured, and our assumption so far is that it was built by the passenger in the taxi," said Assistant Chief Constable Russ Jackson of Counter-Terrorism Policing Northwest.

Police said they believed they knew the identity of the passenger but could not disclose it.

"Although the motivation for this incident is yet to be understood, given all the circumstances, it has been declared a terrorist incident," he said.

The explosion engulfed the taxi in flames outside Liverpool Women's Hospital just before 11 a.m. on Sunday, when a Remembrance Day service to commemorate war dead was being held at nearby Liverpool Cathedral.

"We cannot at this time draw any connection with this but it is a line of inquiry which we are pursuing," said Jackson.

Three men aged 29, 26 and 21 were arrested on Sunday, and Jackson said on Monday another man aged 20 had been arrested. He added that "significant items" had been found at one address while several other addresses had been or would be searched.

He said the passenger had boarded the taxi at a location in Liverpool and asked to be driven to the hospital, which was about a 10-minute drive away. The blast took place within the car as it approached the drop-off point in front of the hospital.

The driver managed to escape from the vehicle but was injured and received medical treatment. He has since been released.

Jackson said it was unclear why the passenger had wanted to go to the hospital or what had caused the sudden explosion of the device.

Earlier, Liverpool Mayor Joanne Anderson described the actions of the taxi driver as heroic. The BBC said he had locked the passenger inside the vehicle.

Prime Minister Boris Johnson later chaired a meeting of the government's emergency committee on Monday to discuss the blast and Patel said the Joint Terrorism Analysis Centre had decided to increase the threat level to the second highest, of severe.

"It is important that the public remains alert to the threat from terrorism but not alarmed," she said.