The woman was set upon as she travelled to work at a nursery in Wanstead, north east London.
The colleague, who did not want to be named, said the victim had "three Asian girls behind her chanting the Koran, 'Allah'".
She added: "They pulled her to the ground, punched her, kicked her. One of them pulled out a knife and cut her arm from her wrist to her elbow.
"The police turned up, the ambulance cleaned her wounds up."
A Metropolitan Police spokesman said they were called at 9:36am on Wednesday to reports of an assault in Hermon Hill.
He said: "Officers and London Ambulance Service attended and found a woman, aged in her 30s, with a slash wound. Her injuries are not life-threatening.
"She has been taken to an east London hospital as a precaution.
"The suspects fled the scene prior to police arrival in an unknown direction.
"No arrests have been made. Enquiries continue."
"Counter-terror officers are aware of the incident but it is not being treated as terrorism at this stage," the Met spokesman added.
The victim, described as a white woman, was attacked by three women "dressed all in black" less than 10 minutes' walk from the nursery at around 9.30am, her colleague said.
She insisted the incident was not related to the nursery or their work.
Asked about her colleague's condition, she added: "She's okay, considering. Obviously it's a shock, she's in shock. She was in tears and she had a cut right up her arm.
"Her stomach was hurting, she had marks all over her, her hair was pulled out."
Paul Ashmore, 31, a mixing and mastering engineer in South Woodford, said his fiancee and child were held on lockdown at Wanstead Church School, a 30-second walk from the incident.
He said his fiancee called him to say the school was not allowing anyone to leave "because there was a stabbing outside", and added that the police did not know "where the persons who did it were".
They were initially told it was gang-related, he said.
"My instant thought was to collect my fiancee and kid and get them to safety not knowing the full extent of what was happening. But I was thinking the worst.
"I instantly, after what has been happening regarding terrorists, thought the worst and informed her I will drive up to collect them," Mr Ashmore said.