Rudd told the Beeb the government would not rule out taking legislative action "if we need to do it".
"The goal of these videos is to incite violence in our communities, recruit people to their cause, and attempt to spread fear in our society", Ms Rudd said.
Developed in partnership with artificial intelligence developers ASI Data Science, the UK Home Office says the new software has had thousands of hours of Islamic State online content run through it, to "train" it to detect extremist propaganda.
Facebook is one of the platforms the government has been pestering to do more to combat online extremism.
The new tool has been trained to spot extremist material using more than 1,000 ISIL videos. There are tools out there that can do exactly what we're asking for.
Dr Marc Warner from ASI Data Science spoke to BuzzFeed News about the project, saying it is an AI algorithm, which works by "spotting subtle patterns in the extremist videos that distinguish them from normal content, from the rest of the internet". The program will be shared with smaller companies that don't have the resources to develop such technology, the agency said.
In Silicon Valley, the home secretary told the BBC the tool was made as a way to demonstrate that the government's demand for a clampdown on extremist activity was not unreasonable. Some larger online platforms and companies have developed their own tools to filter out terrorist propaganda and similar video nasties and thus those who want to share and spread such content have turned their attention to a wide range of smaller platforms.
"The tool can be used by any platform, and integrated into the upload process, so that the majority of video propaganda is stopped before it ever reaches the Internet", the Home Office added in a statement.
This exemplifies the "tools as solutions" problem.
Ms Rudd is visiting Silicon Valley this week, where she will meet with U.S. tech firms to discuss the new model as well as other means of tackling terrorist content online.
The Global Internet Forum to Counter Terrorism, launched past year, brings together several governments including the USA and United Kingdom, and major internet firms like Facebook, Google, Twitter and others.