Upon being challenged by officers, the 26-year-old attacker “reached for what we now know to be a four-foot sword which was in the front passenger foot well,” the police statement said.
“The man, who repeatedly shouted Allahu akbar (God is greatest), was incapacitated with CS spray”.
The assailant stopped his car near a police vehicle in a restricted area outside the world famous palace at around 8:35pm (1935 GMT) Friday, according to a Metropolitan Police statement.
Three unarmed officers were injured during the course of detaining the man, two of them requiring hospital treatment.
Initially arrested on suspicion of causing grievous bodily harm and assaulting police, he was later arrested under the Terrorism Act 2000.
Originally from Luton — a city 30 miles (50 km) north of London — the assailant was then taken to a London hospital for treatment of minor injuries before being taken to a central London police station for questioning.
“Officers from the Counter Terrorism Command are now investigating and searches are being carried out in the Luton area today,” Dean Haydon, the police head of counter-terrorism, said in the statement.
“We believe the man was acting alone and we are not looking for other suspects at this stage,” he added.
The incident comes with Britain and much of Europe on high alert following a string of major attacks over the past two years — most of which have been claimed by jihadists — and hours after a knife attack on soldiers in Brussels.
In Britain alone a total of 35 people have been killed in three attacks in London and Manchester since March.
Two of those involved a vehicle ploughing into pedestrians.
The other attack was a bombing in May at a pop concert by US star Ariana Grande in Manchester which killed 22 people including children.