Speaking in the Commons on Monday, the Health Secretary said that non-essential shops will have to close from Tuesday to help contain the outbreak.
Schools which have welcomed back pupils in Leicester after rules were eased will now have to shut from Thursday.
Mr Hancock said these measures will be reviewed in two weeks.
Mr Hancock told the Commons: “We recommend to people of Leicester say at home as much as you can.
“The more people follow the rules the faster we’ll get control of this virus and get Leicester back to normal.”
It comes as latest figures from Public Health England showed that 866 new cases of Covid-19 were reported in the city in the two weeks up to June 23.
Meanwhile, there have been 2,987 positive cases in Leicester since the pandemic began.
Mr Hancock began by saying that local action has increasingly been taken by the Government in efforts to limit coronavirus infections.
He said: “We’ve been able carefully to ease the national restrictions. Alongside the easing of these national restrictions, we’ve increasingly taken local action.
“In May, we shut Western Hospital (in Weston-super-Mare) to new admissions after a cluster of cases there. Earlier this month we closed two GP surgeries in Enfield and a meat processing factory in Kirklees.”
The local lockdown is the first major test of the Government’s ability to carry out crackdowns on localised coronavirus flare-ups — the policy dubbed “whack-a-mole” by Boris Johnson.
The Government’s decision to extend lockdown measures in Leicester comes after Mr Hancock met with local leaders earlier in the afternoon to discuss the flare-up.
Ahead of the meeting, the city’s mayor Sir Peter Soulsby criticised the Government’s apparent lack of communication with the city council about the outbreak.
He said he had been sent documents at around 1am on Monday that contained “very little substance” and protested of “incredible frustration” at getting data out of the Government.
Earlier, a source told the Standard that Leicester had been closely monitored for more than a week and in the past few days the data had shown a worrying trend.
The data showed coronavirus outbreaks based around workplaces including meat and food processing businesses.
On Friday night, a team of health officials were dispatched to the city to investigate and confirmed that cases were spreading among communities where it is common to find several generations in a household.
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