The boy is believed to be the son of Muslim convert Grace "Khadija" Dare from south-east London, who fled to Syria in 2012 and married Swedish extremist fighter Abu Bakr, who is believed to have been killed since.
The boy, identified as Isa Dare by his grandfather Henry Dare, had also appeared in another propaganda video by ISIS a month ago, The Independent reported.
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The three prisoners, dressed in orange, are then seen tied up in the car before the boy presses the detonator.
A masked man with a British accent standing near to the boy also threatens Prime Minister David Cameron in a speech.
"Firstly, when you sent your spies to Syria and when you authorised for your men, thousands of miles away, to push a button to kill our brothers who lived in the West.
"So today, we're going to kill your spies the same way they helped you kill our brothers. So prepare your army and gather your nations for we too are preparing our army," he said.
The film ends with the car exploding.
Grace Dare was brought up as a Christian but converted to Islam and started using the first name Khadijah before fleeing to Syria in 2012, her family said.
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