BBC security correspondent Gordon Corera said the plot was thought to have involved a series of "waves" of simultaneous attacks, targeting three planes each time.
He also said the plan "revolved around liquids of some kind".
"Officials say the explosives would have been sophisticated and extremely effective," our correspondent said.
Meanwhile, Heathrow Airport has been closed to all incoming short-haul flights with long-haul services seriously delayed. Several outbound services have also been cancelled.
The airport is crammed with thousands of passengers, while at Stansted more than 2,000 people are queuing to pass through customs.
Metropolitan Police Deputy Commissioner Paul Stephenson said the alleged plotters had intended "mass murder on an unimaginable scale".
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This disruption is one of the short term limits on freedom that are needed
"We are confident that we have disrupted a plan by terrorists to cause untold death and destruction and to commit, quite frankly, mass murder," he said.
"We believe that the terrorists' aim was to smuggle explosives on to aeroplanes in hand luggage and to detonate these in flight. We also believe that the intended targets were flights from the United Kingdom to the United States of America."
Police had spoken to a "good number of community leaders to make them aware that a major operation was under way," he added.
Head of the Met's anti-terrorist branch Deputy Assistant Commissioner Peter Clarke said the investigation had had "global dimensions" and had seen an "unprecedented level" of surveillance.
The decision to take action had been taken on Wednesday night, he added.
According to BBC sources the "principal characters" suspected of being involved in the plot were British-born. There are also understood to be links to Pakistan.
BBC home affairs correspondent Andy Tighe said police sources had told him they had found "interesting items" which were being examined.
In other major developments:
Houses in High Wycombe, Buckinghamshire, are evacuated by police
US air marshals are being sent to the UK to provide extra air security
The US Department of Homeland Security increased the threat level applied to US-bound commercial flights originating in the UK to "red" - the first time it has done this for flights coming in from another country
The Home Office confirmed there had been meetings overnight and on Thursday morning of the Cabinet's emergency committee, Cobra, chaired by Home Secretary John Reid, to discuss the terror alert
A spokesman for Number 10 said Tony Blair had briefed US President George Bush on the situation during the night
BBC home affairs correspondent Daniel Sandford said despite the arrests the threat level had been raised "in case there is some other sub-plot, back-up plot around this that the police aren't aware of".
Total: 21 people arrested
London: 'Majority' of arrests - exact locations not known
Birmingham: Two arrests
High Wycombe: At least one arrest
Prime Minister Tony Blair is on holiday in the Caribbean, but Downing Street said the police operation was undertaken with his full support and he had been "in constant touch".
The Department for Transport set out the details of the security measures at UK airports.
Passengers are not allowed to take any hand luggage on to any flights in the UK, the department said.
Only the barest essentials - including passports and wallets - will be allowed to be carried on board in transparent plastic bags.
"We hope that these measures, which are being kept under review by the government, will need to be in place for a limited period only," the statement said.
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Meanwhile we still have to hear from Bushit on vacation still.