Marksmen opened fire five times from point-blank range when the suspect hurdled a ticket barrier and raced along a platform at Stockwell Tube station just after 10am today.
Police screamed at passengers to evacuate the station and are thought to have shot the suspect as he stumbled on to a waiting train.
Alarmed onlookers said they saw up to 20 plain-clothed officers chasing a man before opening fire.
There were unconfirmed reports that police believe the suspect was one of the attackers involved in yesterday's incidents.
Passengers were evacuated from a Tube train, and underground services on the Victoria and Northern lines have been suspended at the request of the police.
Witness Briony Coetsee, 23, said: "We were on the Tube when we suddenly heard someone say 'get out, get out' and then we heard gunshots – someone was shooting.
"Somebody in plain clothes, who I thought was a civilian cop, had his gun out and started shooting and told us to get out."
Chris Wells, a 28-year-old company manager, said he was travelling on the Victoria Line when he saw about 20 police officers, some of them armed, rushing into the station before a man jumped over the barriers.
He said: "There were at least 20 of them (officers) and they were carrying big black guns."
Witness Mark Whitby, speaking to BBC News 24, reported the man was at close range after he had jumped on a train.
He said: "A guy ran on to the train hotly pursued by what I knew to be three plain clothes police officers."
"He tripped and was also pushed to the floor and one of the officers shot him five times.
"One of the police officers was holding a black automatic pistol in his left hand. They held it down to him and unloaded five shots into him. I saw it. He's dead, five shots, he's dead."
He reported the man did not seem to be carrying a weapon or wearing a rucksack.
Scotland Yard said: "We can confirm that just after 10am armed officers entered Stockwell Tube station. A man was challenged by officers and subsequently shot. London Ambulance Service attended the scene. He was pronounced dead at the scene."
* Armed police had earlier surrounded a mosque in east London following reports of a bomb threat. The situation was given the all-clear by police.


Hunt starts for failed rucksack bombers

THE hunt was under way today for four suspected suicide bombers who targeted three Tube trains and a bus in the latest attack on London.
Police were examining evidence at each of the sites of the attempted explosions after the recovery of four devices, which were contained in rucksacks.
Forensic experts will try to establish whether there was a link with the explosives found in West Yorkshire in the wake of the July 7 suicide bombings in the capital.
Metropolitan Police Commissioner Sir Ian Blair said the intention of the suspects "must have been to kill".
No one was seriously hurt in yesterday's incidents.
Detectives believe the bombers were still at large after it was thought they received witness reports of people running away from three of the attempted blast sites.
No arrests were made directly in connection with the blasts.
Scotland Yard said a man held in the Tottenham Court Road area yesterday was released without charge last night.
Another man held at Downing Street remained in custody but again was not thought to be directly linked to the attempted bombings.
Three of the four devices were thought to be of a similar size and weight to the bombs used in the July 7 attacks in the capital. The fourth was smaller and appears to have been contained in a small plastic box.
It was understood that an initial examination of the devices showed they contained constituents which appear similar to the explosives found in a bath at a property in West Yorkshire.
Police believe they represent a serious attempt to detonate explosives on the London transport network in a similar way to the bombing which killed 56 people and injured hundreds.
It was believed that on three of the devices the detonators went off but the bomb failed to explode. On the fourth it was thought the detonator itself failed.
Police would not confirm or deny reports that one of the devices was a nail bomb.


Tube passenger saw man lying on top of bag

THE attacks began at 12.25pm yesterday when police evacuated Shepherd's Bush Tube station after an attempted explosion on the Hammersmith and City line.
Almost simultaneously, attacks took place on the Northern line at Oval underground station and on the Victoria line at Warren Street Tube station.
An explosion was heard on the Number 26 bus in Hackney in east London more than an hour later.
The targets were in the north, south, east and west of London – the shape seemingly of a "burning cross", which was referred to in a statement claiming responsibility for the July 7 attacks.
Frightened passengers on the tube trains reported hearing small bangs and seeing smoke.
Eyewitnesses also reported seeing suspects fleeing three of the scenes.
Business analyst Abisha Moyo said he heard a bang like a and saw a fellow Tube passenger lying on the floor of their carriage.
He asked him "are you all right, mate" but was then stunned to see the man was lying on top of a rucksack with smoke coming out.
The suspect then calmly left the rucksack behind, jumped on the tracks and walked away down the line.