Ben Wallace said terrorists were trying to carry out attacks in the UK and Europe was under "constant attack" because they were either unable to join ISIS overseas or had returned from there.
"I think the threat is still increasing, partly driven by the fact ISIS is collapsing in Syria and people are either unable to get out there to fight for ISIS and so they look to do something at home, or also because people have come back and tried to inspire people with their stories and tales of the caliphate," he told the BBC.
His comments came after ISIS claimed responsibility for the attacks in Spain earlier in the week, killing 14 people.
The terror group lost its Mosul stronghold to Iraqi forces last month and international efforts to bring down its so-called capital, Raqqa, in Syria continue.
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Wallace also said it was vital for people to engage with the government's anti-terrorism programme, 'Prevent', which aims to stop people from becoming radicalised.
"There's no ifs and buts nowadays. If we're going to stop these people who use everyday items such as vehicles and kitchen knives to murder people on our streets, we are going to have to all engage together with 'Prevent' and we are having real success when we do that," Wallace said.
Under the 'Prevent scheme, police and other organisations in the UK are encouraged to build relationships with the public, including faith leaders, teachers and doctors, and urge them to report any concerns voluntarily.
It has faced some criticism as many believe the scheme is not working as well.