The raids - the result of a seven-month surveillance operation - targeted a group thought to be linked to extremists in Somalia.

Australian Federal Police acting chief commissioner Tony Negus today said they were believed to be planning a suicide mission involving semi-automatic weapons.

He added: "The alleged members of the group have been actively seeking a fatwa or religious ruling to justify a terrorist act in Australia."

The Australian reports authorities believe the group was at an advanced stage of preparing to storm a base as punishment for Australia's military involvement in Muslim countries.

It is understood the men planned to kill as many soldiers as possible before they were killed themselves.

Members of the group have been observed carrying out surveillance of Holsworthy Barracks in Sydney's west and other suspicious activity around defence bases in Victoria.

Electronic surveillance is believed to have picked up discussions about how to get weapons to carry out what would be the worst terror attack ever in Australia.

The four people arrested, all Australian citizens and aged between 22 and 26, are being interviewed while several others are assisting with inquiries.

Gallery: Bomb plot busted

The mass counter-terrorism operation, the second-largest ever in Australia, involved at least 400 officers from the Australian Federal Police, Victoria and NSW Police, the NSW Crime Commission and the Australian Security and Intelligence Organisation.

Victoria Police Chief Commissioner Simon Overland said authorities acted after it "got to a point where we decided it was appropriate".

The group is reportedly inspired by the Somalia-based terrorist movement al-Shabaab, with two Melbourne members thought to have travelled to Somalia to train with the al-Qaeda aligned terror group.

Al-Shabaab, which is using suicide bombers and jihadist fighters in an attempt to overthrow the Somali government, seeks to impose a pure, hardline form of Islam - and sees the West as its enemy.

It has been declared a terrorist organisation by the US and it has close links with al-Qaeda leaders, including Fazul Abdullah Mohammed, an architect of the 1998 attacks on the US embassies in Kenya and Tanzania in which 223 people died.

The suspects include Australians of Somali and Lebanese decent, most of whom are labourers employed in Melbourne's construction industry, or taxi drivers.

It is understood that several members of the group also wanted to travel to Somalia to fight with al-Shabaab, but when travel became difficult, they turned their attention to carrying out a terrorist attack in Australia.

Al-Shabaab is currently searching for jihadist recruits around the world, including in Australia.

Authorities fear that Australian Muslims who travel to Somalia to fight for al-Shabaab could return to Australia as sleeper agents for future attacks in this country.