Plainclothes police chased the man into an Underground train station on Friday after he ignored warnings to stop. As the man boarded a train, police shot him five times at point-blank range fearing he was about to set off a bomb.
"We are now satisfied that he was not connected with the incidents of Thursday, 21 July 2005," police told Reuters on Saturday.
"For somebody to lose their life in such circumstances is a tragedy and one that the Metropolitan Police Service regrets."
Brazilian media on Saturday identified the man as Jean Charles de Menezes, AFP reported.
Globo television reported that a cousin of the victim recognised his body. The cousin said that Menezes had lived legally in the British capital for three years and was going to work when he was shot.
An official of the Brazilian Foreign Ministry declined to confirm to AFP the victim's name or nationality, saying they were waiting from information from Scotland Yard.
Some witnesses described the fugitive as appearing to be of Asian origin, but other reports said he looked South American.
Thursday's attacks killed no one, but spread alarm and fear, coming two weeks after 52 people were killed in similar bombings on London's transport network.
The police killing was condemned by Muslim groups, which expressed shock at the news of the victim's innocence.
"To give licence to people to shoot to kill just like that, on the basis of suspicion, is very frightening," Azzam Tamimi of the Muslim Association of Britain told BBC television.
"It is human lives that are being targeted here, whether by terrorists or in this case unfortunately by people who are supposed to be chasing or catching the terrorists."
The suspect was killed in a
crowded Underground train
Former London police commander John O'Connor told the BBC: "It is a shocking incident, and I think the consequences may be graver if he turns out to be a young Muslim."
The killing in front of shocked passengers on a crowded train triggered speculation that traditionally unarmed British police had adopted a shoot-to-kill policy.
"The Metropolitan Police have very clearly demonstrated that they are operating on the premise right now that if they suspect that someone is a bomber, and that the public is going to be endangered by him, they have shoot-to-kill orders," anti-terrorism expert Robert Ayers of the Royal stitute of International Affairs think-tank told Reuters.
But anti-terrorism expert Magnus Ranstorp of St Andrews University in Scotland said the policy, which he said was openly adopted three years ago, could do more harm than good.
"The Muslim community is very uneasy about this, understandably," he told Reuters. "If there is a series of shooting incidents like this, then it becomes a big political issue.
"This is not a major deterrent in terms of carrying out an attack, but it is counter-productive to the careful strategy that the police and government have set out in terms of minimising polarisation within ethnic communities," he said.
The Islamic Human Rights Commission (IHRC) said it was concerned at the apparent policy.
"IHRC fears that innocent people may lose their lives due to the new 'shoot to kill' policy of the Metropolitan Police," chairman Massoud Shadjareh said in a statement.
It also said British police had taken lessons from Israeli security services, which have extensive experience in suicide bombings - a line echoed by some newspapers.
The Metropolitan police declined to comment.
Shoot-to-kill is not a new phenomenon. It was allegedly used by British security forces in Northern Ireland and by the Special Air Service when its operatives shot dead three Irish Republican Army suspects in Gibraltar in 1988.