Officers began the search of the flat at 7am after receiving information from a member of the public.
They are investigating whether the flat was used for meetings, storing chemicals or making the bombs in the lead up to the attacks, sources told the Daily Telegraph.
The present occupiers are not being connected to the investigation and officers believe an associate may have returned after the attacks to clear it up.
They are hoping that forensic traces may remain which allow them to put another piece of the jigsaw in place.
In the three years since the suicide attacks on the London transport system, police have discovered bomb factories in the Hyde Park and Chapeltown areas of Leeds.
The one-bedroom flat in the Harehills area of North Leeds is around three miles from the other two and on the other side of the city from Beeston where three of the bombers grew up.
Information has been slow to come forward from the Muslim community in West Yorkshire and Scotland Yard has always said it believes people know more about Mohammed Sidique Khan, Shehzad Tanweer, Hasib Hussain and Jermaine Lindsay, than they have so far revealed.
Next door to the house is an Islamic bookshop, which has been open for a month and had been a drop-in advice centre for refugees.
One neighbour said police knocked on doors in the street showing residents photographs, one of which he recognised as the bombers' ringleader Sidique Khan.
The resident, who gave his name only as Mohammed, said the officers showed him a number of photos of men, asking if any of them had lived in the area.
He said police said they were making inquiries dating back to events of 2005
Mohammed said the police went into the house opposite carrying bags and cameras.
"I could tell from what they were carrying in that this was more than just a TV licensing raid," he said.
"It was a shock to see the police this morning.
"I've not heard of any trouble in this area. I go to the local mosque. I would hear about things like this."
Deputy Assistant Commissioner John McDowall, head of the Metropolitan Police Counter Terrorism Command and National Co-ordinator of Terrorist Investigations, renewed his call for information.
"While it is more than three years since the attacks this remains a painstaking investigation, and as we have previously said we are determined to identify anyone else who knew what was being planned," he said.
"As a result of our inquiries we are carrying out an extensive search of the flat to determine whether there are any links to the people responsible for the 7/7 attacks.
"I would urge anyone who has suspicions about activity in the flat either in the months leading up to the 7/7 attacks or afterwards, to contact police. Any information, regardless of how insignificant it may seem, could be important."
The flat in Shepherd's Lane was raided in a joint operation between the Metropolitan Police which has led the July 7 investigation and officers from the Counter Terrorism Unit in Leeds.
As the boards were put up around the house, officers were carrying out house to house inquiries in the hope that neighbours may now remember the coming and going from the flat in 2005.
No arrests have so far been made and the search is expected to take several days, police said.
They have asked anyone with information to ring the Anti-Terrorist Hotline on 0800 789 321.
Three men were charged with conspiracy to cause explosions last year in connection with the attacks.
A jury was unable to reach a decision when the trial finished in August and they face a re-trial next year.
