Scotland Yard announced the explosion on a London Underground train involved an improvised explosive device.
"At 8:20 this morning at Parsons Green station there was an explosion on a Tube train. We now assess that this was a detonation of an improvised explosive device," police counter-terror chief Mark Rowley told reporters.
He also stated hundreds of detectives were working alongside intelligence service MI5 in the investigation.
The station was closed, as well as an entire section of the District Line where it is located.
Eighteen were taken by ambulance and the other four made their own way to hospital, the NHS said, adding that the injured have been taken to four London clinics.
A Metro.co.uk reporter at the scene was quoted by the paper as saying that a white container exploded on the train and passengers had suffered facial burns.
She said they were "really badly burned" and their "hair was coming off".
Twitter user @Rrigs posted pictures of a white bucket smouldering on a train.
The device used the attack on Friday did not fully detonate, Sky News reported, citing unnamed sources.
Prime Minister Theresa May will chair a meeting of Britain's emergency response committee later on Friday after the incident at a west London tube station, her office said in a statement.
London Mayor Sadiq Khan said Londoners will see more police on the streets of the British capital after an explosion at a metro station, which officers said was a "terrorist incident."
"They will see over the course of today and the next few days an enhanced police presence, not simply on the public transport network but also across London," Khan told LBC Radio.
"My thoughts are with those injured at Parsons Green and the emergency services who, once again, are responding swiftly and bravely to a suspected terrorist incident," May said in the statement.
US President Donald Trump on Friday denounced an attack in London when a blast hit a packed commuter train, and urged authorities and others to take more "proactive" steps such as better policing of internet use by terrorist groups.
The meeting of COBR, the emergency response committee, will take place at 1200 GMT.
Richard Aylmer-Hall, 52, a media technology consultant, described "panic" on the train.
"There was panic, lots of people shouting, screaming, lots of screaming," he told the Press Association.
"There was a woman on the platform who said she had seen a bag, a flash and a bang, so obviously something had gone off," he said.
"I saw two women being treated by ambulance crews," he said.
'Lots of panic'
Witnesses reported seeing passengers who had suffered facial burns and had hair coming off, with at least two women seen being treated by medics amid scenes of panic during rush hour.
BBC correspondent Riz Lateef, who was at the station travelling to work, said there was "panic as people rushed from the train, hearing what appeared to be an explosion.
"People were left with cuts and grazes from trying to flee the scene. There was lots of panic."
Official responses
British Foreign Secretary and former London mayor Boris Johnson appealed for calm.
"I'm afraid my information is limited and it really is important not to speculate at the moment," he told Sky News.
"Obviously, everybody should keep calm and go about their lives in a normal way, as normal as they possibly can," he said.
Natasha Wills, assistant director of operations at London Ambulance Service said in a statement: "Our initial priority is to assess the level and nature of injuries".
She said the ambulance service had sent "multiple resources" to the station, including a hazardous area response team.
London Fire Brigade said they were also at the scene and were called at 8:21 am.
