Baroness Neville-Jones said the UK was preparing "to be able to respond to a terrorist incident like the world witnessed in Mumbai".
More officers are being trained to respond to an armed attack, the level of firearms training is increasing and ministers are involved in mock scenarios, she said.
Lady Neville-Jones said the UK faced a "serious and sustained" threat which had not diminished in recent years.
"The possibility of a scenario similar to the devastating incident in Mumbai in 2008 is one for which we must be prepared," she said.
"We have been training more officers to respond to armed attack and enhancing the existing levels of firearms training.
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