One of two men on terrorism charges was allegedly found with handwritten notes referring to a plan to carry out guerrilla warfare in the Blue Mountains.
The two men have been denied bail a day after warnings of heightened "terrorist chatter" in the aftermath of the fatal cafe siege in the city's financial hub.
Sulayman Khalid, 20, who was arrested at his house in Regent's Park on Tuesday afternoon, had documents connected with facilitating a terrorist attack with government buildings suggested as targets, police allege.
Khalid made national headlines earlier this year after storming off SBS TV show Insight when questioned about the cancellation of his passport.
The 20-year-old, who is also known as Abu Bakr, sported a jacket emblazoned with the Islamic State flag when he appeared on Insight. Within minutes of being questioned about his support for IS fighters, Khalid abruptly stormed off set.
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Khalid did not apply for bail and will remain behind bars until his next court appearance on February 18.
"My client has been charged with a very serious offence," his lawyer, Adam Houda, said outside of court this morning.
"But I remind you that authorities have got it wrong in the past many times and all that we ask is that the court process be respected and for this matter to be determined on the evidence and not by politicians and the media."
Another 21-year-old Marsfield man was also arrested and charged with breaching a control order as part of continuing investigations into the alleged planning of a terrorist attack on Australian soil.
The Australian Federal Police (AFP) said members of the Joint Counter Terrorism Team made the arrests with New South Wales Police as part of Operation Appleby.
Australian Federal Police deputy commissioner Michael Phelan said there was no specific terrorist threat.
"But there was enough there that gave concern to us that something was being planned, and that's why a person was charged. He was charged in relation to having a document that was designed to clearly facilitate an attack," he said.
"Certainly the documents talked a little bit about potential government targets and so on, and what that did, coupled with other things that were seized during the search warrant, gave us significant concern to be able to act early."
"I am confident we've disrupted the activity that they were planning."
The terrorism threat level remains high, meaning a terrorist attack is likely, but not imminent.
He said the group under investigation had no contact with Martin Place siege gunman Man Haron Monis.
Deputy Commissioner Catherine Burn said there will be more police in public places this holiday season.
"We have placed 11 people [since September] before the court, some of these are for serious terrorism offences," she said.
"As we move into Christmas and the New Year that investigation will continue.
"There will be a heightened police presence in public places."
Commissioner Burn said there would a large police presence on New Year's Eve to "ensure safety".
"The reason for our success is because people give us information," she said.
"It's really important when people go about their activities if they see anything suspicious [they let us know]."
Operation Appleby is a joint operation involving NSW Police, AFP and ASIO.
In September, 15 people were detained in counter-terrorism raids across suburbs in Sydney's west and north-west.
Properties were also raided in Brisbane involving a further 70 police officers.
At the time, police said the Sydney raids foiled a plot to "commit violent acts" in Australia, including a plan to behead a member of the public.
Just last Friday, NSW and AFP raided several Sydney homes, including one of the properties targeted during the September raids.
Heightened level of 'terrorist chatter', Abbott says
Prime Minister Tony Abbott yesterday warned of a heightened level of "terrorist chatter" in the aftermath of the Martin Place siege and reminded Australians that the national terrorism alert level remains on "high", which means an attack is "likely".
But the deputy chairman of Parliament's Joint Committee on Intelligence and Security, Anthony Byrne, has warned the terror alert level should be raised.
"On the basis of recent events both here in Australia and overseas, and provided information that the Prime Minister spoke about was sound and accurate, there is a strong case to raise the terror threat to extreme as quickly as possible," he told Fairfax media.
Raising the alert level to extreme would mean a "terrorist attack is imminent or has occurred".
But the chairman of Parliament's Joint Committee on Intelligence and Security, Dan Tehan, rejected the view of his deputy.
"What the Government needs to do is take the advice of the experts," he said.
"I am absolutely certain that our intelligence agencies and the Australian Federal Police are monitoring this and would advise the Government if it did need to be raised to a higher level."
Foreign Minister Julie Bishop has confirmed the latest advice is that the official threat level should remain at high.
"Our security and intelligence agencies have assessed that an attack is likely," she told Channel Seven.
"It's not at the next level 'extreme' which means imminent, in other words, they have details of an attack that is likely to take place and where it will take place. So we're just warning people to be careful, be alert."
In France, up 300 extra soldiers have been put on patrol in public places over the holiday period following three seemingly random attacks in as many days.
Ms Bishop said French authorities are "obviously assessing that situation very carefully."
"But I just want to stress in Australia our law enforcement and intelligence agencies are working very hard to ensure that we are able to disrupt the activities of people who might be planning this kind of activity," she said.
"We're just warning people to be careful, to be alert but of course go about your everyday business and of course over the Christmas break we want people to be relaxed."
Morning news break – December 24