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Indonesian police are on high alert today after what they described as credible intelligence of a possible terrorist attack against VIPs attending tomorrow's Bali bombing memorial ceremony, including Australian Prime Minister Julia Gillard.

Bali's deputy police chief, Brig-Gen. Ketut Untung Yoga Ana, said there were indications terrorists would target several dignitaries in Bali for the ceremony.

"We have prepared to face such a threat and we are still following the people involved," he said.

"We are confident we can secure the threat."

Ms Gillard, Opposition Leader Tony Abbott, former prime minster John Howard and Indonesian President Susilo Bambang Yudhoyono will be at the service with hundreds of survivors and family members of those killed in the 2002 bombings.

Bali's terror alert was raised to the highest level after the threat and, late yesterday, police anti- terrorism officers, the bomb squad and military police descended on the commemoration site.

A senior source in Indonesia's military police - who oversee security for the Indonesian President - confirmed the threat to The West Australian.

But he suggested the intelligence related more to the timing of an attack than the location.

"There could be an attack but it could be anywhere," he said. "It could be here or in Jakarta or anywhere in the world. We are preparing the best we can."

He said security could not afford to fail because of Indonesia's "honour" in hosting Ms Gillard, who is due on the island late today.

In Canberra, Ms Gillard said she would not be deterred from attending the commemoration.

"Families will be travelling there," she said. "It will be a day in which we will pay our respects and remember what that moment was like for Australians."

At least 1000 military officers and police will be on hand for the ceremony, with hundreds more, including snipers, deployed in spots such as Kuta and Jimbaran, which was hit in the 2005 bombings.

Police said airports and seaports were being secured "to the highest level".

While tourists crowded the island's popular nightclub strip where 202 people died, including 88 Australians, security precautions yesterday were clearly tighter.

Bars and clubs across the island have been ordered to close at 2am.