Australian Prime Minister Tony Abbott and heads of all states and territories have agreed on a meeting on Thursday to implement a new terrorist threat alert system by the end of the year.

The heads of governments met at the Council of Australian Governments (COAG) meeting in Sydney, which had a specific focus on counter-terrorism, the first special meeting on counter- terrorism in a decade after then Prime Minister John Howard host the last meeting in 2005.

The new system will replace the current unclassified four-tier Public Alert system under which the terror threat escalates from low to medium, high and then extreme.

It will be replaced by new terminology: not expected, possible, probable, expected and certain.

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, a statement about the COAG meeting said.

The new system will be introduced later this year following consultation with the community.

"We need to ensure organizations understand the implications of the new system and whether their own internal security procedures and guidelines will need to be reviewed," said the statement.

The heads of governments also agreed to and released Australia' s Counter-Terrorism Strategy, a comprehensive long-term national counter-terrorism blueprint.

The statement pointed out that Australians currently face the most significant threat from terrorism in the nation's history.

In September 2014, the National Terrorism Public Alert level was raised to HIGH, which means a terrorist attack is likely.

Since then, there have been two attacks in Australia, and security and law enforcement agencies have disrupted a further six attacks. Twenty three people have been charged as a result of eight counter-terrorism operations, almost a third of all terrorism-related charges since 2001.

There are now over 120 Australians fighting in Syria and Iraq.

Approximately 160 Australians actively support extremist groups through financing and recruitment.

"The threat of terrorism is real and continues to grow and evolve," the statement said.

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