Australian Federal Police chief Andrew Colvin speaks at a press conference in Sydney on Thursday as New South Wales Police Commissioner Andrew Scipione looks on. Fifteen people were detained on Thursday in Australia's biggest-ever counter-terrorism operation, targeting groups suspected of planning public beheadings.

AFP/Sydney

Australia's largest ever counter-terrorism raids on Thursday detained 15 people and foiled a plot by Islamic State jihadists to conduct "demonstration killings", reportedly including beheading a member of the public on camera.

A major pre-dawn operation was carried out across Sydney and Brisbane by more than 800 officers acting on some 25 search warrants. One person has so far been charged with serious terrorism-related offences and was to appear in court later in the day.

At least one gun was seized.

The raids, which spanned multiple suburbs, came barely a week after Australia boosted the terror threat level to "high" for the first time in a decade on growing concern about militants returning from fighting in Iraq and Syria.

"Police believe that this group that we have executed this operation today had the intention and had started to carry out planning to commit violent acts here in Australia," federal police chief Andrew Colvin said.

"Those violent acts particularly related to random acts against members of the public."

This prompted comparisons to the murder of British soldier Lee Rigby, who was hacked to death in a random attack on a street in England last year by two Muslim converts.

Prime Minister Tony Abbott said he had been briefed on intelligence that public executions had been ordered by IS militants.

"The exhortations, quite direct exhortations, were coming from an Australian who is apparently quite senior in ISIL to networks of support back in Australia to conduct demonstration killings here in this country," he said.

"So this is not just suspicion, this is intent and that's why the police and security agencies decided to act in the way they have."

The Australian Broadcasting Corp said court documents were expected to reveal that the plan involved snatching a random member of the public in Sydney, draping them in an Islamic State flag and beheading them on camera.

Asked whether this was the case, Colvin replied: "That allegation will relate to serious violence on a random member of the public here on the streets of NSW (the state of New South Wales).

"Let's let it run its course in court."

The Australian government believes up to 60 Australians are fighting alongside jihadists for Islamic State, while another 100 were actively working to support the movement at home.

"These people, I regret to say, do not hate us for what we do, they hate us for who we are and how we live. That's what makes us a target," said Abbott.

"It's important our police and security organisations be one step ahead of them and this morning they were."

The latest raids followed the arrests of two people last week in Brisbane who were charged with allegedly recruiting, funding and sending jihadist fighters to Syria.

And, on Wednesday, a Sydney-based money transfer business was shut down amid concerns it was being used to funnel funds to the Middle East to finance terrorism.

NSW Police Commissioner Andrew Scipione urged calm.

"Right now is a time for calm. We actually need to let people know that they are safe," he said.

Last week's decision to increase the terror threat level after years on "medium" officially means a "terrorist attack is likely", and comes after repeated government warnings that attacks could happen.

Related Story