Australia on Thursday announced a clearer terror alert system as the country faces what Prime Minister Tony Abbott called the worst extremist threat in its history, with the government outlining a long-term strategy to tackle the scourge.

The new system will be introduced later this year, subject to community consultation, with the new threat levels to be: certain, expected, probable, possible and not expected, which Abbott said would be much easier for the public to understand.

"At the moment, the terrorist alert levels are extreme, high, medium and low and there's a bit of interpretation involved in them," he said after a summit in Sydney with the country's eight state and territory leaders.

"Any changes to the threat level under the new system will be accompanied by a statement providing more information on what the new threat level means, where the threat is coming from, what the potential targets are and the means by which an attack may be perpetrated."

The government has been increasingly concerned about the flow of fighters to Iraq and Syria to join groups such as Islamic State, with some 120 Australians already in the region and 160 actively supporting extremist organisations through financing and recruitment.

Australia's terror alert level was lifted to high in September last year with two attacks since then -- the stabbing of two policemen in Melbourne and a deadly cafe siege in Sydney -- with six other attacks foiled, according to the government.

"Australians currently face the most significant threat from terrorism in our nation's history," said Abbott. "The threat of terrorism is real and continues to grow and evolve."

As part of its effort to tackle extremism, the government released a new long-term strategy that focuses on providing information to the community on terrorist threats and what the governments was doing to counter them.

It focuses on five core elements, including challenging violent extremist ideologies, stopping people becoming terrorists by working with community members to identify those most at risk, and the early disruption of terrorist activity.

The strategy also highlights fine-tuning responses and recovery arrangements in the event of an attack while maintaining strong ties with the US-led coalition battling groups like Islamic State.

"The resilience and cohesion of our community is our best defence against violent extremism," said Abbott. "It is our greatest asset in preventing, responding to and recovering from a major terrorist attack."