The Government says it will introduce new laws by mid-March to increase the minimum sentence for serious terrorism offences to 14 years, and end automatic early release from prison.
The move, signaled in the Queen's Speech, comes less than two months after convicted terrorist Usman Khan killed two people after attending a prisoner rehabilitation programme near London Bridge.
Khan had been released halfway through his 16-year sentence for terrorism offences.
The use of lie detector tests, also known as polygraphs, is also being considered by the Government to prove that a convicted terrorist has reformed or is not planning to carry out another attack, before they are released on licence.
Home Secretary Priti Patel says the Government is doing all it can to make sure a repeat of the London Bridge attack does not happen.
"The senseless terror attack at Fishmongers' Hall in November confronted us with some hard truths about how we deal with terrorist offenders," she said.
"Which is why we immediately announced a review into sentencing and licence conditions, to do whatever is necessary to stop these sickening attacks from taking place."
Justice Secretary Robert Buckland defended the use of lie detectors in assessing offenders' risk to the public after questions were raised over their accuracy and appropriateness in the criminal justice system.
"We get a lot of people who are superficially very compliant with the regime and sometimes the assessment of risk is a really difficult thing to do," he told Sky News.
"You can get people who are, in effect, sleepers for many years and then suddenly back come the hatreds and the prejudices and we see atrocities like the one we did at Fishmongers' Hall.
"Which is why, I think, the introduction of polygraphs, the lie-testing devices which are already being used in sex offenders, improves the tools that we have in terms of trying to assess that risk, to minimise that risk."
Liberal Democrat home affairs spokeswoman Christine Jardine said judges already had the power to lock up terrorists for life, while criticising polygraphs as "not accurate or reliable enough" for such critical decisions.
The Home Office has also pledged to:
- Double the number of counter-terrorism probation officers.
- Make more places available in probation hostels so authorities can monitor terrorists in the weeks after they are released from prison.
- Increase counter-terrorism policing funding by £90 million year-on-year for the coming year to £906 million.
- Give an immediate £500,000 cash injection for support for victims of terrorism and a review of services available.
- Provide more specialist psychologists and trained imams who help to assess the risk of radicalised offenders.
- Offer more training for front-line prison and probation staff to identify and challenge extremism behind bars and on licence.
Terrorists deemed not to be a risk would have to serve two-thirds of their sentence before the Parole Board could consider them for release.
Plans for the Bill were first mooted shortly after the November attack, which claimed the lives of Saskia Jones and Jack Merritt.
Cover image: Armed police and emergency services on London Bridge in November (Picture: PA).