The blast, which happened at 6.37pm without warning, devastated the Admiral Duncan pub in Old Compton Street, the capital's gay centre. Ten minutes before the blast police had cordoned off a phone box in nearby Shaftesbury Avenue, although it was not knownwhether this was linked to the attack.
The explosion shocked the gay community and ethnic minorities, coming less than a week after last Saturday's blast in Brick Lane in London's East End and the previous week's nail-bomb attack on Brixton market, which injured 39.
Extreme right-wing groups were seen as prime suspects for last night's attack. Sir Paul Condon, Metropolitan Police Commissioner, appealed for help in catching the bombers. He said a far-right group calling itself the White Wolves had phoned the BBC to claim responsibility for the attack, as it had done for the previous London bombings.
Earlier this week police issued a photograph, taken from a closed-circuit television camera, of a man suspected of planting the Brixton bomb.
Speaking at a press conference at Scotland Yard last night, Sir Paul insisted that everything was being done to trace the "evil cowards" behind the bombs.
Confirming that police were linking last night's explosion to the incidents in Brixton and Brick Lane, the Metropolitan Police Commissioner said they were incidents that affected the whole community.
"These are cowardly hate attacks," he said. "They may be aimed at vulnerable individuals and communities, but these are hate attacks that affect all of us." The Commissioner said that in recent days, anticipating a possible explosion in the strongly gay area of Soho, crime prevention officers had visited a number of pubs and bars to offer advice on security. The Admiral Duncan, where the bomb exploded having been placed next to the bar on the ground floor, was among those visited by officers.
Deputy Assistant Commissioner Alan Fry, head of the force's anti-terrorist branch, said that when officers arrived at the scene they were confronted by a scene of horror. "It was an horrendous scene. It was a complete wreck."
The Old Compton Street area was packed with people when the device exploded at the start of a bank holiday weekend. Amid chaotic scenes the injured were treated by the roadside as others fled the area. Eyewitnesses spoke of an enormous explosion and dozens of people being hit by flying glass.
London Ambulance Service confirmed that two people had died in the blast. Another 13 were seriously injured, of whom two had lost limbs. Many of the others suffered burns. There were also many walking wounded.
The injured were taken to four London hospitals: University College, St Thomas', The Royal London and Guy's.
The bombing was greeted with anger by the gay community, which had been bracing itself for such an attack. Angela Mason, director of the gay pressure group Stonewall, called on the Home Secretary, Jack Straw, to bring in emergency powers to curb far-right extremists.
Mr Straw said: "This is a terrible outrage committed by people with no humanity. I know that the police are devoting huge efforts to find the perpetrators." He added: "We are dealing with people who have warped minds, right-wing extremists who are obviously racist and homophobic."
Peter Tatchell, spokesman for the gay rights group OutRage!, said: "A lot of gay people saw the Old Compton Street area as a safe haven.They felt able to relax and hold hands without fear of attack. This outrage has destroyed that cosy assumption."
The nature and timing of the attack now suggests that any minority community in Britain - but particularly in London - might be next. Claims from far- right groups have listed the Jewish, Chinese and Irish communities as potential targets in addition to Asian and black people.
Mike Whine, of the British Board of Jewish Deputies, said synagogues were strengthening security and Jews would be mounting patrols in the areas where they live. "We are concerned but we have lived through security threats in recent years. There are certain precautions which we have put into place this week," he said.
Full reports, pages 2-4