The force said on Saturday that they received a report of theft and have since arrested a man who remains in custody.
The stop sign has since been replaced to avoid endangering road users, police confirmed.
A spokesperson added: “This incident is currently being investigated by officers from the Met’s Central South CID.
“We are aware of footage being shared which shows the sign being removed.
“Anyone who may have information about the incident or the whereabouts of the sign is asked to call police.”
A man who witnessed the removal of the artwork said onlookers “watched in awe” as a man “bashed it with his hands”.
Banksy Valentine mural highlights domestic abuse, but local council not happy
Banksy Valentine mural highlights domestic abuse, but local council not happy
To get to the installation, the witness rode a Lime bike which was then used by a man who removed the art from the south London street.
He said the man stood on the Lime bike and first attempted to “hit it with his hands” before leaving and returning with bolt cutters.
Alex, 26, recalled: “We said, ‘What are you doing?’ but no one really knew what to do, we sort of just watched it happen.
“We were all a bit bemused, there was some honking of car horns. He ripped it off and ran across the road and ran away.
“He said nothing. He didn’t seem to care that much about the art itself.”
Photos from the scene show a man wearing a red and black jacket using a Lime bike to prop himself up, with one foot placed on the saddle and the other on the handle bars, while the bike is held steady by another man.
A further image shows the man in red and black running in front of a white van with the stop sign after successfully managing to remove it.
Following the incident, the deputy leader of Southwark Council, Jasmine Ali, called for the piece to be returned so “everyone in the community can enjoy Banksy’s brilliant work”.
In a statement, Ali said: “Of course Banksy picked Peckham, it’s already on the map when it comes to art and is a hotbed for creativity.
“It should not have been removed and we’d like it back so everyone in the community can enjoy Banksy’s brilliant work.
“We have reported the removal of our sign to the police to help get it back.”
It is understood that Banksy is not behind the removal and this is not the first time the artist’s work has been removed shortly after its installation.
Shredded Banksy artwork ‘Love is in the Bin’ sells for record US$25.4 million
Shredded Banksy artwork ‘Love is in the Bin’ sells for record US$25.4 million
A mural weighing 3.8 tonnes called Valentine’s Day Mascara appeared on the side of a house in Margate, Kent, on Valentine’s Day this year and was dismantled some hours later after Banksy had shared a series of photos of it online.
The mural depicted a 1950s housewife with a swollen eye and missing tooth, wearing an apron and yellow washing-up gloves, and throwing a man into a chest freezer.
In September, the mural was placed in the foyer of The Art Of Banksy exhibition in Regent Street, central London, where it can be viewed for free.
The exhibition features pieces including “Girl With Balloon,” “Flower Thrower” and “Rude Copper” and also focuses on Banksy’s “Dismaland,” “The Walled Off Hotel In Bethlehem” and recent works acknowledging the ongoing war in Ukraine.