A man in a rented van mowed down cyclists and pedestrians in New York killing eight people in what the city's mayor called "a particularly cowardly act of terror".
He careered down a popular cycle path a few streets from the World Trade Centre memorial injuring at least 11 people.
The 29-year-old driver was shot in the stomach by police and arrested after jumping out of the van with what turned out to be a fake gun in each hand and shouting "Allahu Akbar!"
His condition was not immediately released, and he has been identified as Sayfullo Saipov, two law enforcement officials said.
The suspect has a Florida driving licence but may have been living in New Jersey.
He is expected to live, the two law enforcement officials have said.
President Donald Trump railed against Islamic State, although law enforcement officials have made no mention publicly of the group's possible involvement, and it has not claimed responsibility.
Mr Trump tweeted: "We must not allow ISIS to return, or enter, our country after defeating them in the Middle East and elsewhere. Enough!"
He added: "My thoughts, condolences and prayers to the victims and families of the New York City terrorist attack. God and your country are with you!"
The driver barrelled along the cycle path for nearly a mile before slamming into a small yellow school bus.
The mayhem and the burst of police gunfire set off panic in the area and left the pavement strewn with mangled bicycles and bodies that were soon covered with sheets.
"I saw a lot of blood over there. A lot of people on the ground," said Chen Yi, an Uber driver.
Eugene Duffy, a chef at a waterfront restaurant, said: "So many police came and they didn't know what was happening. People were screaming. Females were screaming at the top of their lungs."
Police closed off streets across the western edge of Manhattan along the Hudson River and officers rushed into the neighbourhood just as people were preparing for Halloween festivities, including the big annual parade through Greenwich Village.
"This was an act of terror, and a particularly cowardly act of terror aimed at innocent civilians, aimed at people going about their lives who had no idea what was about to hit them," New York's mayor Bill de Blasio said.
New York's governor, Andrew Cuomo called it a "lone wolf" attack and said there was no evidence to suggest it was part of a wider plot.
President Trump promised his administration's "full support" to New York City's police department in the wake of what he called a "cowardly" terrorist attack.
He said in a statement: "Our thoughts and prayers are with the victims of today's terrorist attack in New York City and their families."
The president also thanked the emergency services "who stopped the suspect and rendered immediate aid to the victims of this cowardly attack".
He said: "These brave men and women embody the true American spirit of resilience and courage."