People place flowers and candles at a tribute to victims of the bombing in Manchester city center on May 23, 2017. (AFP)

Britian's MI5 did not take action on vital intel that could have prevented the Manchester bombing that killed 22 people attending an Ariana Grande concert in 2017, an official investigation concluded on Thursday.

The MI5's delay in following up on one of two intel findings resulted in the "missing of an opportunity to take a potentially important investigative action," said the head of the investigation on the case and retired high court judge John Saunders in a report.

The fatal attack, which targeted crowds leaving the event at the Manchester Arena in northern England, was carried out by 22-year-old Salman Abedi from Manchester, inspired by the Islamic State terrorist group.

"Based on everything the (MI5) Security Service knew or should have known, I am satisfied that such an investigative action would have been a proportionate and justified step to take," said Saunders in his third and final report on the attack.

"This should have happened," he added, referring to taking action on one of the two pieces of intel.

While the attack killed parents that were there to pick up their children, the youngest casualty was an eight-year-old.

"Although I accept that Salman Abedi demonstrated some security consciousness and that this might have affected the efficacy of the investigative action that I have identified, there was the real possibility that it would have produced actionable intelligence."

The spy agency's chief Ken McCallum said he was "profoundly sorry that MI5 did not prevent the attack."

"I deeply regret that such intelligence was not obtained," he added, noting that "gathering covert intelligence is difficult – but had we managed to seize the slim chance we had, those impacted might not have experienced such appalling loss and trauma," he said in a statement.

Richard Scorer, a lawyer who represented 11 of the families in the case, described the news as a "devastating conclusion".

"As a result of these failures, at the very least, a real possibility of preventing this attack was lost. This is a devastating conclusion for us," he said.

"The failures exposed in this report are unacceptable."