More than 60 per cent of England, or 34 million people, will be under the toughest lockdown measures from Wednesday after a new variant of Covid-19, causing cases to double every seven days, was identified in the country's south-east.
London will move into the harshest coronavirus restrictions as a result of the discovery.
Health Secretary Matt Hancock said about 1,000 cases of the new variant had been found and it was spreading faster than the previous version.
The World Health Organisation has been notified and the Ministry of Defence's laboratory at Porton Down was conducting detailed studies, Mr Hancock said.
But he said there was no reason to believe it would harm the effectiveness of a vaccine.
Mr Hancock told MPs the city would move into Tier 3 from midnight on Wednesday, closing restaurants and pubs.
Parts of Essex and Hertfordshire were also moved into the highest alert level.
The capital has the highest rate of coronavirus in England and the new restrictions are a step down from a hard lockdown.
Mr Hancock said that without the increase in measures, the rise in cases could overwhelm hospitals.
"Over the past week we've seen very sharp, exponential rises in the virus across London, Kent, parts of Essex and Hertfordshire," he told Parliament.
"We therefore have decided to move greater London, the south and west of Essex and the south of Hertfordshire into Tier 3, which is the very high alert level.
"These restrictions will come into force at midnight on Wednesday morning."
Mr Hancock said that although most of the new variant cases were in the south-east, cases have been identified in 60 local authority areas and "numbers are increasing rapidly".
"I must stress at this point that there is currently nothing to suggest that this variant is more likely to cause serious disease," he said.
"But it shows we've got to be vigilant and follow the rules and everyone needs to take personal responsibility not to spread this virus."
At Downing Street on Monday, Mr Hancock said the British government would on Wednesday review the rest of the country's coronavirus tier restrictions.
He said that the spread of Covid-19 was uneven, with sharp rises in South Wales, London, Kent and Essex.
"This rise has been among people of all age groups, not just school-aged children," Mr Hancock said.
"And I'm particularly concerned about the rising rates in the over-60s and the number of people in hospital, which is also rising.
"We've seen it time and time again elsewhere this year. When cases rise, pressure on hospitals mounts.
"And so too then, sadly, do the number of people who die from coronavirus.
"To stop this, we need to act fast."
Chief medical officer Prof Chris Whitty said the virus would continue to mutate.
Many saw the tightening of restrictions in the capital as inevitable. Rupa Huq, the Labour MP for Ealing Central, tweeted that it was the "worst kept secret ever".
Earlier, London Mayor Sadiq Khan called on the government to go further, insisting all secondary pupils in the capital be sent home and masks made compulsory in high streets.
But some local authorities have already heeded the call.
Greenwich, in south-east London, became the first council in England to ask all schools to close because of the rapidly rising infection rate.
The move is in defiance of a government request that schools be kept open, with the Department of Education threatening legal action against those who move teaching online.
Despite this, many parents are already taking their children out of class to avoid catching the virus and being asked to self-isolate over Christmas.
London's infection rate for every 100,000 people was at 191.8 on December 6, up from 158.1 the previous week, Public Health England said.
The latest data also showed coronavirus cases rising in 24 of London’s 32 boroughs, with rates worse than Manchester and Liverpool when those cities entered Tier 3.
"The surge in coronavirus cases across our capital is deeply concerning," Mr Khan said.
"I am calling on the government to urgently provide additional support to get the spread under control, save lives and livelihoods, and ensure our NHS is not overwhelmed this winter."
He called for more asymptomatic testing for people who cannot work from home and requested extra support for businesses forced to close.
"Time is running out to get the virus under control in our city, which is why I urge the government to heed my call and provide us with the extra support we desperately need," Mr Khan said.
Business Secretary Alok Sharma told Sky News there would be no change to the five-day window over Christmas when coronavirus restrictions are relaxed.
“We’ve taken a balanced and proportionate approach,” Mr Sharma said.
Meanwhile, Sweden is being offered help by its Nordic neighbours to cope with an increase in Covid-19 cases that threatens to overwhelm hospitals.
Stockholm reported that 99 per cent of the region’s intensive care beds were full, sending the city into a panic and prompting calls for outside help.
The country’s death toll exceeded 7,500 last week and its death rate per capita is several times higher than that of its Nordic neighbours, but lower than several European countries that opted for lockdowns.
Stockholm is the Swedish region hardest hit by Covid-19, accounting for more than a third of the country's death toll from the virus.
Before Sweden draws on help from Finland and Norway, it will try to use available intensive-care unit capacity in parts of the country that are less burdened.
But neighbouring nations said they were ready to assist by freeing up space for Swedish intensive-care patients.
Sten Rubertsson, staff doctor at the National Board of Health and Welfare, said he was unsure if ICU beds could reach the 1,100 mark from spring without outside help.
“People are exhausted,” Dr Rubertsson said.