The anti-war protester Brian Haw could be exploited by terrorists wanting to bomb Westminster, a court heard.
Terrorists could plant bombs behind Mr Haw's banners, police say
Mr Haw's banners outside the Houses of Parliament could be used to conceal a device by extremists, Marylebone Magistrates' Court was told.
The Metropolitan Police made the claims at hearing where Mr Haw is alleged to have breached anti-terror laws.
Mr Haw, 57, denied at an earlier hearing that he had breached the Serious Organised Crime and Police Act.
The breaches include erecting placards in an area of Parliament Square that exceed a given size.
Hugo Keith, prosecuting, told Marylebone Magistrates' Court: "It's not suggested Mr Haw poses a terrorist threat.
"What concerns the Metropolitan Police and has concerned them for a number of years is the risk his unique position in Parliament Square may be exploited by terrorists wanting to strike a devastating blow to the heart of democracy."
The court heard from Superintendent Peter Terry, divisional commander for Charing Cross, who has the responsibility of approving demonstrations, such as Mr Haw's ongoing vigil, within Parliament Square.
"Terrorism isn't just directed at causing death, it's also directed at causing terror.
"To set off a terrorist device within Parliament Square would reverberate around the world."
On 23 May this year dozens of placards erected by Mr Haw were seized by police in a raid.