Eight suspected Islamic terrorists, all British citizens of Pakistani descent, were arrested as 700 officers carried out 24 raids across London and the Home Counties.
Anti-terrorist detectives believe an al-Qaida-supporting cell could have been plotting a "spectacular" attack.
The fertiliser a key bomb-making ingredient would have been enough to cause a blast on the same scale as the 1996 IRA bombs at South Quay, Canary Wharf in London, and the Arndale Centre in Manchester.
Ammonium nitrate fertiliser, which requires a "booster" explosive to set it off, is believed to have been used by al-Qaida in an attack on the US embassy in Nairobi in 1998 and in the first World Trade Centre bombing in New York in 1993.
It was the major ingredient in the biggest of the bombs used by Islamic terrorists in Bali which killed 202 people in 2002 and was also used in bombings against British targets in Istanbul last year and in the 1995 Oklahoma bombing.
Home Secretary David Blunkett said the fertiliser find was a "timely reminder" that British interests at home and abroad remained a terrorist target and praised a "first class" police and security operation.
He said: "We have always been clear with the people in the UK that we face a real and serious threat and have never disguised the fact that this threat could manifest itself in any number of ways".
The fertiliser stash was found in a plastic bag 6ft high by 2ft wide at a storage centre in Boston Road, Hanwell, London.
A person who answered the phone at Access Self-Storage yesterday refused to comment.
Police had been mounting their operation for months and are believed to have been planning raids.
They are thought to have acted this morning after becoming convinced a bomb could be made. The suspects are aged 17, 18, 19, 20, 21, 21, 22 and 32.
Their youth sparked speculation that others alleged to be involved may have escaped capture but Scotland Yard refused to comment.
The raids were launched in Uxbridge, Ilford and Colindale in London and in Crawley, Slough, Luton and Horley in the Home Counties.
Two of the men were arrested in Uxbridge, one in Ilford, one in Horley, one in Slough and three in Crawley.
Many of the locations searched were a short drive from airports but Scotland Yard refused to comment on whether an airport could have been the target.
Hanwell, Uxbridge and Slough are near Heathrow. Crawley and Horley are near Gatwick.
In Langley Drive, Crawley, yesterday two uniformed police officers were standing guard outside a house after one of the raids.
Four people with Arabic-sounding names were registered as living at the address on the electoral roll.
One of the houses raided was the home of an elderly couple in Stratford Road, Luton.
The pensioners, who are not believed to be connected with the investigation, were not arrested and are staying with relatives.
A house raided in Juniper Road, Crawley, had been occupied by a father, his sons and a daughter, a neighbour said.
The father worked for a nearby catering firm, which supplied meals to airlines.