The operation began at around 0930.
Armed police investigating the 21 July attempted bombings have surrounded flats in west London in what police are calling a "significant" operation.
Eyewitnesses say they heard three shots and a large explosion as officers wearing gas masks entered the property.
The area, around Basing Street, near Notting Hill, has been cordoned off, and the area has been evacuated.
One eyewitness says a man dressed in a white forsenic overall has been taken away in an unmarked police car.
Another has spoken of seeing three other people being taken away in a police van.
Chris Stokes told BBC News: "We got told to move out of the way by armed police and within about five minutes we heard three gunshots go off behind the block of flats at Tavistock Crescent."
Allan Sneddon, who lives nearby, told BBC News: "There was this almighty bang... big enough to shake the ground."
13:12 29Jul2005 RTRS-Armed police train guns on London suspect-witness
LONDON, July 29 (Reuters) - Armed police had their guns trained on a man in west London and were ordering him to remove his clothes and leave the building, a witness told Sky Television.
"They've got guns pointed up and they're telling him to get his clothes off and come down," she said by telephone.
A major armed operation is under way in west London in connection with the London terror attacks, with one of the suspected would-be bombers reported to be the target.
One eyewitness has suggested that a man is inside a flat and police are shouting at him to get him to come out.
A witness called Lisa told Sky News: "We've got two men standing outside the flat right now. They have guns pointed upwards at the flat.
"They've been telling him for about 20 mins now to get his clothes off and get down."
A number of explosions were heard at the scene, possibly the sound of police entering the property which was the object of the operation.
Arrests in terror police swoops @ 14.50 Friday
Scotland Yard say they are not aware of firearms having been used
Armed police investigating the 21 July attempted bombings have made a number of arrests and surrounded flats in west London in "significant" operations.
At least two properties are believed to have been raided, in Notting Hill and North Kensington, and residents moved.
Eyewitnesses say they heard three shots and a large explosion as officers wearing gas masks entered one property.
Police seeking three men over the failed bomb attacks have also made two arrests at Liverpool Street station.
The properties raided are in Dalgarno Gardens, North Kensington and the Tavistock Road area of Notting Hill, less than a mile away.
In Dalgarno Gardens officers are continually shouting at someone in a flat to come out. They are addressing him as "Muhammad".
Larger map of West London raids
The police are asking him: "What is the problem? Why can't you come out?
"Take your clothes off. Exit the building. Do you understand?"
Officers are telling other residents on the 350-property estate to "get inside now".
Scotland Yard say they are not aware of firearms having been used.
In an separate raid in Notting Hill one eyewitness says a man dressed in a white forensic overall was taken away in an unmarked police car.
Another has spoken of seeing three other people being taken away in a police van.
Chris Stokes told BBC News: "We got told to move out of the way by armed police and within about five minutes we heard three gunshots go off behind the block of flats at Tavistock Crescent."
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It is very scary when something like this can happen on your doorstep
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Allan Sneddon, who lives nearby, told BBC News: "There was this almighty bang... big enough to shake the ground."
BBC Correspondent Jane Hughes said: "Police are regarding this as a very significant event - a very significant piece of police activity. "
She said loud noises heard by witnesses may have been explosives used to blow in the door to a property and CS gas may have been used to subdue people.
RAIDS IN WEST LONDON
Dalgarno Gdns: Police surround flat on Peabody Estate and are urging man to come out
Tavistock Rd/ Basing St: Area cordoned off
Two bombing suspects from the failed July 21 attacks on London's transit system have been arrested in raids Friday, CBC News reported, citing a British police source.