Britain has raised threat from terrorism, following a taxi blast in Liverpool on Sunday, to severe from a previous level of substantial, meaning an attack is highly likely, interior minister Priti Patel said on Monday.

Police has declared the blast to be a "terrorist incident" and said the motivation was unclear.

"Although the motivation for this incident is yet to be understood, given all the circumstances, it has been declared a terrorist incident and counter-terrorism policing are continuing with the investigation," said Russ Jackson, head of Counter Terrorism Policing North West.

A male passenger in the car was declared dead at the scene, while the male driver was injured and sent to a hospital, where he was stated to be stable. 

Three men, respectively aged 29, 26 and 21, were arrested in Liverpool's Kensington district under the anti-terrorism laws, Greater Manchester Police said in a tweet.

Interior Minister Priti Patel tweeted earlier that police were keeping her up to date on developments.

(With input from agencies)