The eight people arrested early Wednesday morning by police in central England were allegedly planning an Iraq-style kidnapping and beheading in the country.
The eight people intended to post on the internet a video of a British Muslim soldier being tortured and killed, Sky news reported.
The unnamed hostage, who is in his 20s, is now under police protection, it said.
The eight were arrested in Birmingham at 4:00am after a six-month surveillance operation involving both police and the secret intelligence service MI5, the British Broadcasting Corporation (BBC) reported on Wednesday.
West Midlands police said the eight were held "on suspicion of the commission, preparation or instigation of acts of terrorism under the Terrorism Act 2000."
Security sources were quoted as saying that the plot "would not have resulted in a mass casualties", but marked "a different approach to terrorism in Britain."
The police will host a press conference on the operation on Wednesday afternoon.
