Australian Prime Minister Malcolm Turnbull says counter-terrorism agencies have foiled a plot to "bring down" a plane in a terrorist attack in Australia.

Four men were arrested on Saturday night when heavily armed counter-terrorism officers raided four Sydney properties over an alleged plot to blow up an aircraft.

Mr Turnbull said increased security measures have been placed on all Australian airports.

Australian Federal Police Commissioner Andrew Colvin said officers became aware people in Sydney were planning to commit a terrorist attack using an "improvised device".

Commissioner Colvin said the four men in custody had not been charged by police.

Police believed the attack would target the Australian aviation industry at a major airport.

The family who lived in the raided house on Cleveland Street in Surry Hills have been described as "perfectly nice and normal people" by a neighbour.

"We knew them to say hello to and they seemed nice," the woman in her early 30s, who didn't want to be identified, told AAP.

An elderly couple lived in the home, the neighbour said, and they had adult children.