The increase to the second-highest threat level out of five means a terrorist attack within the next six months is highly likely, following Wednesday's stabbing of two Jewish men in the Golders Green area, the government said.
It was decided independently by the Joint Terrorism Analysis Centre.
The UK last faced such a threat level in November 2021 after the Liverpool Women's Hospital bombing and the killing of MP David Amess, before it was lowered to "substantial" in early 2022.
Interior Minister Shabana Mahmood said the assessment reflected the latest intelligence and a longer-term rise in extremist threats and was not made solely in response to the Golders Green attack.
Officials said the classification came against a spate of recent attacks in London and mounting security concerns linked to foreign states which they said had helped fuel violence, including against the Jewish community.
Starmer, who has faced severe criticism from some in the Jewish community for the government's response, promised more police in Jewish areas, a crackdown on those spreading anti-Semitism and new legislation to deal with state-sponsored threats from the likes of Iran.
"People are scared, scared to show who they are in their community, scared to go to synagogue and practice their religion, scared to go to university as a Jew, to send their children to school as a Jew, to tell their colleagues that they are Jewish," Starmer said in a televised statement.
He had earlier been jeered and heckled by a small crowd waving banners reading "Keir Starmer Jew Harmer" when he visited Golders Green where the latest attack took place.
The suspect in the attack, a 45-year-old UK citizen who was born in Somalia, had a history of serious violence and mental health issues, police said.
They confirmed he had previously been referred to the counter-radicalisation scheme Prevent in 2020, while local media reported he had served time in prison for an incident in 2008 when he stabbed an officer and a police dog.
Amid widespread calls for more protection for the UK's small community of about 290,000 Jews, Starmer said the government would do "everything in our power to stamp this hatred out".
This included stronger powers to shut down charities promoting extremism and a clampdown on "hate preachers," he said.
The government also said it would fast-track legislation allowing the prosecution of people acting as proxies of a state-sponsored group, so they can be dealt with in the same way as spies for foreign intelligence services.
"We need stronger powers to tackle the malign threat posed by states like Iran, because we know for a fact that they want to harm British Jews," Starmer said.
A pro-Iranian government group has claimed responsibility for some recent attacks while last month two men were charged under the UK's existing National Security Act with being tasked by Iran to carry out hostile surveillance.
Iran's government has rejected such accusations.
One of the major issues which has caused anger amongst the Jewish community in the UK has been pro-Palestinian marches, which have become commonplace since the October 2023 Hamas assault on Israel that triggered the war in the Gaza Strip.
Critics say the protests have generated hostility and become a hotbed of anti-Semitism.
"If you stand alongside people who say 'Globalise the Intifada' you are calling for terrorism against Jews, and people who use that phrase should be prosecuted," Starmer said.
"It is racism, extreme racism, and it has left a minority community in this country, scared, intimidated, wondering if they belong."
