"The Joint Terrorist Analysis Centre, which reviews the threat level that the UK is under, have decided to lower that level from critical to severe," Rudd said in a televised statement.
Earlier, British police arrest a 21-year-old man in connection with the London train attack.
British police said Sunday they had made a second arrest in connection with the bombing of a London Underground train, as their probe into the terror attack widened.
The 21-year-old man, who has not been named, was detained late Saturday in Hounslow, on the western rim of the capital, a statement said.
Officers had earlier arrested an 18-year-old man over Friday's attack at Parsons Green station, which injured 30 people, and said they were hunting for more suspects.
Home Secretary Amber Rudd said Sunday that police are trying to find out how the teenager "was radicalised".
The bomb went off in a packed carriage and although the device is thought to have malfunctioned it still caused a large explosion followed by what eyewitnesses said was a "fireball".
It was Britain's fifth terror attack in six months, a series that has claimed 35 lives.
The Islamic State group claimed responsibility for Friday's explosion.
The first arrest on Saturday took place at the Dover ferry terminal - a main link to Europe. A "number of items" were recovered during the operation and the teenager is now in custody in London, officers said.
Police also raided a home in Sunbury, a town west of London on Saturday. Local residents quoted in British media said the owners of the house were elderly foster parents
Terror threat 'critical'
Britain's terror threat was raised on Friday to "critical", indicating that another attack is feared, and soldiers have been deployed to guard key sites, including nuclear facilities.
The critical warning was last used after the deadly suicide attack at Manchester Arena, also claimed by IS, in May.
Rudd also placed doubt on IS's claim to being behind Friday's incident.
"It is inevitable that so-called Islamic State or Daesch will try to claim responsibility but we have no evidence to suggest that yet," she told the BBC.
Rudd had also earlier dismissed as "pure speculation" US President Donald Trump's claim, made Friday on Twitter, that a "loser terrorist" behind the attack was known to Scotland Yard.
The tweet had already garnered a terse rebuke from Prime Minister Theresa May, who said: "I never think it's helpful for anybody to speculate on what is an ongoing investigation."
The improvised device at Parsons Green, a quiet and well-off residential district, failed to detonate fully.
But the blast inflicted flash burns on passengers, and prompted dozens of others to flee in panic.
'Fireball'
Twitter user @Rrigs posted pictures of a white bucket smouldering on the train and described how a "fireball flew down carriage and we just jumped out open door".
The bucket, which was inside a frozen food bag, looked like the type used by builders and there appeared to be cables coming from it.
Louis Hather, 21, had been travelling to work and was three carriages down from where the explosion took place.
"I could smell the burning. Like when you burn plastic," he told AFP.
He was trampled on as panicking passengers stampeded out of the station and his leg was badly cut and bruised.
The bomb's remnants were examined by forensic scientists but no further details were released.
Several victims were taken to hospital, though health authorities said none were in a serious life-threatening condition.
