The Foreign Office is advising British tourists not to travel to Tunisia, warning that a "further terrorist attack is highly likely".
Brits already in the country have been urged to leave. The Foreign Office said that tour operators are arranging additional flights out of Tunisia.
The Foreign Office has been working with the local authorities to investigate the attack, which was carried out by 23-year-old student Seifeddine Rezgui, who targeted holidaymakers.
Foreign secretary, Philip Hammond, said that there has been no information relating to a "specific or imminent threat", but that the government believes another attack is very likely.
He said: "Since the attack in Sousse the intelligence and threat picture has developed considerably, leading us to the view that a further terrorist attack is highly likely."
The minister added: "We judge that more work is needed to effectively protect tourists from the terrorist threat. Taking all these factors together, we judge that it is right and prudent to make this change today.
"We have not taken this decision lightly, but our first priority will always be the safety of our citizens."
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The Foreign Office's new travel advice states: "Since the attack in Sousse, we have been working closely with the Tunisian authorities to investigate the attack and the wider threat from terrorist groups in Tunisia.
"Although we have had good co-operation from the Tunisian government, including putting in place additional security measures, the intelligence and threat picture has developed considerably, reinforcing our view that a further terrorist attack is highly likely.
"On balance, we do not believe the mitigation measures in place provide adequate protection for British tourists in Tunisia at the present time and we have therefore changed our travel advice accordingly."
The new advice contradicts that given by the Prime Minister just last week that Brits should not abandon their holidays to Tunisia.
Addressing the House of Commons last Monday, David Cameron said that the country should "not give up our way of life" and "cower in the face of terrorism".
Despite Cameron's speech, Ukip leader Nigel Farage reconsidered his trip to Kenya in the wake of the beach atrocity, saying it was "just not safe".
Tunisia declared a state of emergency after the attack.
On Wednesday the Tunisian Prime Minister said that further attacks are likely.
The Foreign Office said that the Tunisian authorities have increased their security measures, "but have also acknowledged the limitations in their ability to counter the current terrorist threat".
Travel firms have begun cancelling flights to the North African country.
Thomson and First Choice immediately cancelled all outbound flights to Tunisia for the summer season running up to and including October 31.
A spokesman said: "Thomas Cook is strongly advising its guests in the country to return on these flights. We are also sending our specialist assistance teams to Tunisia to offer customers additional support in resort.
"We are committed to doing everything we can to support our guests in Tunisia at this time and will work to bring them back to the UK safely and as soon as possible."
Between 2,500 and 3,000 British tourists are believed to be in Tunisia and about 300 independent travellers.