Manchester bomber Salman Abedi was known to the security services and his risk to the public remained "subject to review" before carrying out his deadly attack.
Abedi, whose sister said he "wanted revenge" for Western military strikes in the Middle East, was a "former subject of interest" to MI5, a Whitehall source confirmed.
Details of the intelligence agencies' knowledge of Abedi came as police hunting the network behind his attack said they had made "significant" arrests and seized "very important" items in raids linked to the investigation.
After chairing a meeting of the Cobra emergency committee, Theresa May said the terror threat level will remain at critical - meaning another attack is expected imminently.
In an indication of the level of counter-terrorism activity, a senior Whitehall source revealed that 18 plots had been foiled since 2013 in Britain.
Those included five since the Westminster attack in March this year.
It is understood the scale of the threat being dealt with by counter-terror agencies is on an "unprecedented" scale and intelligence officers faced "difficult professional judgments" about where to focus their investigations.
Read more: 41 Scots present at Manchester terror attack
The source said: "MI5 is managing around 500 active investigations, involving some 3,000 subjects of interest (SOIs) at any one time.
"Abedi was one of a larger pool of former SOIs whose risk remained subject to review by MI5 and its partners.
"Where former SOIs show sufficient risk of re-engaging in terrorism, MI5 can consider reopening the investigation, but this process inevitably relies on difficult professional judgments based on partial information."
Eight people remained in custody in connection with Monday's attack, in which Abedi targeted music fans at an Ariana Grande concert at Manchester Arena, killing 22 and injuring dozens.
Greater Manchester Police Chief Constable Ian Hopkins said: "I want to reassure people that the arrests that we have made are significant, and initial searches of premises have revealed items that we believe are very important to the investigation."
The killer's sister, Jomana Abedi, told the Wall Street Journal her brother may have been reacting to US-led strikes in the Middle East.
"I think he saw children - Muslim children - dying everywhere, and wanted revenge," she said.
"He saw the explosives America drops on children in Syria, and he wanted revenge. Whether he got that is between him and God."
The British-born son of Libyan parents, Abedi had been banned from a mosque in Manchester after criticising an imam for "talking bollocks" during a sermon critical of the Islamic State (IS) terror group and the authorities had been warned about concerns he was developing radical views.
Manchester Arena bombing: Parents pay tribute to Scots girl, 14, killed in terror attack
The 22-year-old's father Ramadan and brother Hashim have been detained in Libya and another brother, Ismail, was arrested in Manchester on Tuesday.
Meanwhile UK frustration at repeated leaks of sensitive information by US agencies led to the suspension of co-operation between the police and law enforcement counterparts across the Atlantic.
Mr Hopkins said the leaks - including leaked evidence photographs from the scene of the attack published by the New York Times - had caused "distress and upset" to the victims' families.
Defending its decision to publish the pictures the New York Times said: "The images and information presented were neither graphic nor disrespectful of victims, and consistent with the common line of reporting on weapons used in horrific crimes."
The Prime Minister said she would raise the leaks with US President Donald Trump in the margins of a Nato summit in Brussels, stressing that the "special relationship" was based on trust.
She said: "Part of that trust is knowing that intelligence can be shared confidently and I will be making clear to President Trump today that intelligence that is shared between law enforcement agencies must remain secure."
The president criticised the leaks and vowed to investigate.
Read more: 41 Scots present at Manchester terror attack
In White House statement, he said: "The alleged leaks coming out of government agencies are deeply troubling. These leaks have been going on for a long time and my Administration will get to the bottom of this. The leaks of sensitive information pose a grave threat to our national security.
"I am asking the Department of Justice and other relevant agencies to launch a complete review of this matter, and if appropriate, the culprit should be prosecuted to the fullest extent of the law.
"There is no relationship we cherish more than the Special Relationship between the United States and the United Kingdom."
Home Secretary Amber Rudd said she was "confident" the leaks would stop and the suspension of intelligence-sharing would be temporary.
The US acting ambassador to the UK Lewis Lukens said Washington was "determined" to stop the leaks of information.
The Queen visited some of the youngsters injured in the blast at Royal Manchester Children's Hospital and condemned the "very wicked" attack.
Prof Bob Pearson, medical director of Central Manchester University Hospitals NHS Trust, said 18 adults and 14 children injured in the blast remained in hospital.
They included five adults and five children who were in critical care, he added.
They were among the 75 people admitted across eight hospitals in the region, including 23 in critical care.
The monarch's visit came after the nation fell silent at 11am to mark the atrocity.
Crowds gathered at well-known sites in the UK, including London's Parliament and Trafalgar Squares, and Manchester's Albert Square.
Police are searching a house in Wigan after a man was arrested in the town on Wednesday as part of the investigation into the Manchester bombing.
A Greater Manchester Police spokesman said: "We made an arrest in Wigan yesterday in connection with the investigation into the horrific incident at Manchester Arena.
"Following this arrest, a house in Wigan was raided this morning and is currently being searched."
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