In an interview with British newspaper The Sunday Times, Wallace said al Qaeda -- the group behind the infamous World Trade Center attacks that killed almost 3,000 people in the US on September 11, 2001 -- "still aspire for aviation attacks" and is developing technology to bring down planes.
"The aviation threat is real," Wallace said in the interview on Saturday night. "(Al Qaeda) have reorganized. They are pushing more and more plots towards Europe and have become familiar with the new methods."
The rise of ISIS has overshadowed the al Qaeda threat in recent years -- particularly after its most prominent leader, Osama Bin Laden, was killed by US forces in Pakistan in 2011.
But Wallace said the danger had never truly diminished.
"Al Qaeda sat quietly in the corner and tried to work out what the 21st century looked like while ISIS became the latest terrorist boy band," he said. "But they have not gone away."
British intelligence chiefs are also concerned about US President Donald Trump's decision to withdraw US troops from Syria, with Wallace saying it will create a "new safe haven for Islamists to launch attacks on the West."
His remarks echo concerns voiced by US politicians, including Sen. Lindsey Graham, who told Trump in the past week that withdrawing troops from the Middle East could lead to "a second 9/11."
Wallace's statements come amid widespread chaos at Gatwick Airport in the UK over the weekend as rogue drones flying overhead led dozens of flights to be canceled.
There is no indication the Gatwick Airport incident is terror-related, Sussex police said earlier in the week.