Home Secretary Alan Johnson said Umar Farouk Abdulmutallab had been placed on a watch list earlier this year after UK authorities refused to renew his student visa.
Mr Johnson also said he did not believe that Abdulmutallab was acting alone, and that police and security services were examining whether he was radicalised while at University College London (UCL) between 2005 and 2008.
Speaking on BBC Radio 4's Today programme, Mr Johnson confirmed the 23-year-old had been refused a new visa and placed on a watch list last May after applying for a bogus course.
"If you are on our watch list then you do not come into this country," Mr Johnson said. "You can come through this country if you are in transit to another country but you cannot come into this country."
The Home Secretary said US authorities should theoretically have been informed, and he doubted there had been a "hiccup" in procedures.
American officials have said Abdulmutallab was on one of their "long" watch lists, but was not banned from travelling.
The issues being investigated by police and security services in this country included "what happened when he was in this country, was he radicalised in this country, was there any association with whoever may have been behind this plot", according to Mr Johnson.
"We don't know yet whether it was a single-handed plot or (there were) other people behind it - I suspect it's the latter rather than the former," he added.
Security at airports on both sides of the Atlantic has been heightened in the wake of the incident on Christmas Day, when Abdulmutallab allegedly tried to ignite a device as the Northwest Airlines flight from Amsterdam - carrying nearly 280 passengers - entered its final descent to Detroit.
Delays are expected to continue on transatlantic journeys today with passengers advised to bring only one item of luggage, and facing waits of about one hour.
Mr Johnson said the Government was looking at the use of full body scanners, which some experts have suggested were now needed at airports.
"There is an issue of cost and you always have to get this balance between ensuring that the security of our population which is our primary concern, is balanced against people going about their normal daily business," he said.
"There is an issue of cost, yes, there is an issue of convenience. But we intend to be at the cutting edge of all this technology and to ensure that we put it in place as quickly as possible."
He said answers were needed about how Abdulmutallab managed to penetrate security at Amsterdam's Schiphol Airport, where he transferred after flying in on a KLM flight from his native Nigeria.
According to US law enforcement officials, the suspect has claimed he received training and instructions from al Qaida operatives in Yemen.
A video posted on extremist websites affiliated with al Qaida on December 21 depicted a bearded man in head-dress, identified as Mohammed al-Kalwi, says: "We are carrying a bomb to hit the enemies of God."
Abdulmutallab's wealthy family have said they believe he was radicalised while attending the British International School in Lome, the capital of Togo. After he broke off contact, they approached foreign security agencies expressing concern about his state of mind and requesting "assistance to find and return him home".
However, police and MI5 have been diverting resources to probe the importance of his London links.
Throughout the weekend search teams combed the imposing mansion block in Mansfield Road, close to Oxford Street, where Abdulmutallab lived in the capital.
Michael Rimmer, a Briton who taught the suspect history at UCL, said his impression of Abdulmutallab was positive, claming the youngster chose to give £50 to an orphanage rather than spend it on souvenirs in London.
Mr Rimmer said: "At one stage, his nickname was 'The Pope'. In one way it's totally unsuitable because he's Muslim, but he did have this saintly aura."
Meanwhile, Abdulmutallab has been charged in hospital in the States with attempting to destroy Northwest Airlines Flight 253.
US President Barack Obama has ordered a fresh review of screening processes to discover whether the authorities should have taken more heed of warnings about the threat the suspect posed.
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