The plans were "suggestive of an al Qaeda plot," he said.
British police said they had arrested 21 suspects in the plot to blow up passenger jets flying between the United Kingdom and the United States.
Alert levels were raised at U.S. and British airports and air travel across Europe and in the United States faced mass disruptions. (Watch what passengers must do at the world's busiest international airport -- 3:06)
The foiled plot was "intended to be mass murder on an unimaginable scale," London's Metropolitan Police Deputy Commissioner Paul Stephenson said.
The plot involved hiding masked liquid explosives and detonators in carry-on luggage, Chertoff said. ('Untold death and destruction' planned -- 2:37)
One government official said the terrorists had hoped to target flights to major airports in New York, Washington and California, all major summer tourist destinations.
Chertoff said the plotters were "getting close to the execution phase."
"There were very concrete steps under way to execute all elements of the plan," he said.
"They were not yet sitting on an airplane," but were very close to traveling, a senior U.S. counterterrorism official told The Associated Press.
A U.S. administration official said the terror plot targeted Continental, United, and American Airlines. It was not immediately clear whether other airlines also were involved.
British Home Secretary John Reid said the plotters planned loss of life on "an unprecedented scale."
Chertoff said the plan was reminiscent of a plot by 9/11 coordinator Khalid Shaikh Mohammed in 1999, who had envisioned detonating bombs on 11 airlines possibly traveling over the Pacific Ocean.
Britain's threat warning level has been raised to "critical" -- meaning an attack is expected imminently.
The U.S. threat level has been raised to the highest level of "severe," or red, for commercial flights originating in the United Kingdom bound for the United States, according to the Department of Homeland Security. (Full story)
In addition, the threat level has been raised to "high," or orange for all commercial flights operating in or coming to the United States, the DHS said.
The nation's overall terror threat level has not been altered.
Thursday was the first time the DHS has raised the threat level for a specific group of flights.
"Due to the nature of the threat revealed by this investigation, we are prohibiting any liquids, including beverages, hair gels, and lotions from being carried on the airplane," a DHS statement said.
While there is no indication of plotting within the United States, Chertoff issued a statement saying "we cannot be sure that the threat has been entirely eliminated or the plot completely thwarted."
That means airline passengers around the country should show up at least two hours early for all flights, an official with the Transportation Security Administration told CNN.
"Travelers should go about their plans confidently, while maintaining vigilance in their surroundings and exercising patience with screening and security officials," Chertoff said.
The alleged terror plot comes almost five years after Briton Richard Reid attempted to detonate explosives hidden in his sneakers on an American Airlines flight from Paris to Miami in December 2001, only a few months after the September 11, 2001 attacks in New York and Washington.
Passengers thwarted his plan, and the plane landed safely in Boston.
Reid pleaded guilty to terrorism charges in October 2002 and is serving a life sentence at the nation's super-maximum security prison in Florence, Colorado.
Security alert follows arrests
British and U.S. security agencies quickly moved to impose strict limits on carry-on items in the wake of Thursday's arrests, causing extended delays at airport security checkpoints. (Full story)
The British Airports Authority said no hand luggage would be allowed onto planes leaving British airports until further notice.
British Airways canceled all shorthaul flights in or out of Heathrow Airport for Thursday, and delays were stacking flights up at airports across Europe. (Full story)
Stephenson said 21 people were arrested by London, Birmingham and Thames Valley police overnight in an ongoing operation.
"This is about people who are desperate ... who want to do things that no right-minded citizen of this country or any other country would want to tolerate," Stephenson said.
The arrests were the result of a "covert counter-terrorist operation," police said. "It is believed that the aim was to detonate explosive devices smuggled on board the aircraft in hand luggage."
Home Secretary Reid said: "We are doing everything possible to disrupt any other terrorist activity. This will mean major disruptions from all UK airports."
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