Australian Federal Police Deputy Commissioner Michael Phelan said two men who attempted to smuggle an improvised explosive device (IED) onto an Etihad plane went on to hatch a separate plan to build a hydrogen sulphide bomb.

Phelan said Khaled Khayat and Mahmoud Khayat, charged with terror offences, had been planning "one of the most sophisticated terror plots attempted on Australian soil".

Police described the IED as a "high-end military-grade explosive". However, that attempt was aborted, and a second plan was then hatched to create a "chemical dispersion device".

Accordingly, the plot to detonate an IED on the Etihad flight was directed by a senior ISIS controller, who organised for components to be sent to Australia via international air cargo from Turkey.

Deputy Commissioner Phelan said the plot began in April when one of the accused was put in contact with the controller via his brother, who is a senior member of the terrorist group in Syria.

Deputy Commissioner Phelan said components and precursor chemicals of the hydrogen sulphide bomb were located during searches on properties in Sydney over the last few days but the plot had now been "completely disrupted through the wonderful efforts not only of law enforcement but in particular our intelligence agencies”.

Four men were arrested as part of terror raids in Sydney on Saturday night. Khaled Khayat and Mahmoud Khayat have both been charged with two terrorism-related offences and were refused bail in Parramatta Local Court.

Another man was released mid-week, while a fourth man remains in custody.