Police will receive "clarified" guidance on hate crimes after a row broke out over the Met's handling of pro-Palestinian protests.
Ministers have called for tougher police action over a video appearing to show a man shouting "jihad" at a separate event from the main march.
Having reviewed the clip, the Met said they had not identified any offences.
Met Police Commissioner Sir Mark Rowley said officers' hands are tied by laws on hate speech.
Sir Mark said his force were "ruthless in in tackling anybody who puts their foot over the legal line".
But he argued hate crime laws "probably need redrawing" because extremists groups were able to spread "truly toxic messages" messages without breaking the law.
Writing later in the Telegraph, Sir Mark aid: "In an increasingly polarised society, the chasm between our country's legislation and public expectation is becoming more evident.
"The events of this moment suggest that perhaps the line of the law is not in the right place."
'No place' for hate
Asked about Sir Mark's comments in the House of Commons, Prime Minister Rishi Sunak insisted police already had "powers to arrest those inciting violence or racial hatred".
Mr Sunak said there was "no place on our streets for that type of behaviour".
The Homes Office is working "extensively to clarify the guidance to officers on the ground, so they are aware fully about the powers and tools that are available to them to make sure these people feel the force of the law", he added.
Several Ministers, including Immigration Minister Robert Jenrick, have called for tougher policing of the protests. On Sunday, he argued the chant of Jihad was "inciting terrorist violence" and should be "tackled with the full force of the law".
The Met estimated that up to 100,000 people gathered in central London on Saturday to show solidarity with Palestinian civilians.
More than 1,000 officers were involved in policing the demonstration near Downing Street, and police made 34 arrests linked to possession of fireworks, public order and assaulting an emergency service worker.
But the force said on Sunday it was taking no further action after footage appeared online of a man chanting "jihad, jihad" at the smaller rally staged by the Islamist group Hizb ut-Tahrir, which was close to the main march.
The Public Order Act, makes it a crime to incite violence against another person. While the Terrorism Act requires prosecutors to show that somebody was encouraging people to "commit, prepare or instigate acts of terrorism" to convict them of a crime.
In a statement the Met Police said the word jihad had "a number of meanings but we know the public will most commonly associate it with terrorism".
It said it "had not identified any offences arising from the specific clip", and specialist lawyers at the Crown Prosecution Service had reached the same conclusion.
The force is also planning no further action against protesters holding banners referring to "Muslim armies".
Labour leader Sir Keir Starmer said the government needed to look at whether there were "gaps in the law".
He also said there had been a "huge" increase in hate crimes in recent weeks, adding: "We've all got a duty to take action to clamp down on hate crime whatever political party we are in."
In 2021, before he became the Met commissioner, Sir Mark co-authored a report warning that there was a "gaping chasm" in terror laws allowing extremists to act with "impunity".
The report argued that material praising Adolf Hitler, supporting Osama bin Laden and denying the Holocaust was all legal as long as it did not directly encourage violence.
"Current legal boundaries allow extremists to operate with impunity," Mr Rowley said then. "The current situation is simply untenable."
