Patrick Mercer said a new anti-terror unit was needed with "a battalion's worth" of 500 highly specialised policemen and soldiers who could be called upon in case of attack.
The chair of the Commons counter-terrorism sub committee said the Olympics in London would be a "magnet" for terrorists and attacks like the one seen in India "could just as well happen" in UK cities.
He said: "What can happen in Mumbai could just as well happen in Manchester or Birmingham ... this style of attack is something we'd find very difficult to cope with."
Asked if Britain was prepared for such an attack, the former Conservative shadow homeland security minister said: "No, we have certain numbers of troops and police available for these sorts of operations but we have to be clear, these are large numbers of well armed, well disciplined terrorists.
"If we are going to have to cope with this sort of thing in the future, not least that we've got the Olympic games coming up which will be like a magnet for this sort of thing, we're going to have to think very carefully about the number of specialist forces we have, how they are trained, how we raise and organise more of these people, where we keep them, how we deploy them."
Responding to the remarks, Olympics minister Tessa Jowell said: "What people should be assured (of) is that there is vigilance and constant reappraisal, and that in relation to the Olympics the level of security provided will be consistent and appropriate to the level of risk."
