Codenamed "Olympic Guardian" and involving airmen, soldiers and sailors, the exercises are aimed at reassuring Britons and foreign visitors that everything possible is being done to keep them safe during the games.
Military chiefs insist the manoeuvres, between May 2 and 10, are necessary contingency measures for what will be Britain's biggest peacetime security operation.
But some have described the security, which includes a plan to place surface-to-air missiles on a residential block next to the Olympic Park in east London, as "Olympic madness".
"Yet again there has been a complete overreaction which in fact will put ordinary people at greater risk than any extremely unlikely external attack," one letter in the left-leaning Guardian newspaper said.
Anti-war protesters have accused the Ministry of Defence of creating a climate of fear.
Typhoon jets, stationed at the Royal Air Force's (RAF) Northolt airbase in northwest London, will fly over London, and pilots will test procedures for intercepting any aircraft which breach the restricted airspace imposed around the Games.
Britain's biggest helicopter carrier HMS Ocean will patrol the River Thames, while the warship HMS Bulwark, will be off Weymouth on the south coast, where the sailing events will be held. The Typhoon fighters will be joined by RAF Puma aircraft, Lynx helicopters carrying snipers, and surveillance aircraft.
After backing the US invasion of Iraq, and with British troops in Afghanistan, Britain remains a target for acts of terrorism. London transport bombings in 2005 killed 52 people.
But the tight security measures run the risk of reducing the popularity of the Games among Londoners already complaining about the 9.3 billion pounds cost and the disruption to ordinary people's lives, particularly commuters.
Many fear the transport network will not be able to cope with extra passengers during the Games which start on July 27.
"You can scramble all the fighter jets you like but people will still be jammed solid out on the tracks," RMT union General-Secretary Bob Crow said.
Londoners resent the fact that specially designated traffic lanes will be set aside for VIPs while the rest of the city crawls along its log-jammed narrow lanes.
The cost of the military exercises which began on Wednesday has been budgeted within the overall one billion pound security budget, the Ministry of Defence said, without giving a further breakdown.
About 13,500 soldiers will help the police during the Games, more than the 9,500 UK troops serving in Afghanistan.