At least half the roughly 150 Australians involved with extremist groups in Syria and Iraq come from NSW. A ''substantial'' number come from Victoria, and these two states dwarf numbers coming from other states and territories, a senior source said.

Most of the Australians are understood to be fighting with Sunni extremists in the Syrian civil war, while about 10 are known to have travelled to Iraq, joining the Islamic State in Iraq and the Levant (ISIL), which is surging towards Baghdad with plans to overthrow the Iraqi government.

So serious is the threat that intelligence officials are working closely with governments in surrounding Middle East countries including Lebanon and Jordan - countries with which Australia does not has a close intelligence relationship. The government is also considering ways to change laws to make it easier for our spy agencies to track Australians overseas.

Another side-effect of the jihadist threat has been the forging of closer ties between the Australian and Indonesian governments - a relationship that was badly bruised by the Edward Snowden spying allegations and the Coalition's policy of turning back asylum seeker boats.

The problem of travelling extremists is also plaguing the Indonesian government, which has growing numbers of citizens flying to the Middle East.

Prime Minister Tony Abbott sees the threat of returning jihadists as his next great border security challenge, having implemented his hardline asylum seeker policies. Mr Abbott says he will do his ''damnedest'' to stop ''trained killers who hate our way of life … cause mayhem in our country''. He says he is determined to detect and detain extremist fighters if and when they return to Australia.

Foreign Minister Julie Bishop has been cancelling passports, and there has been speculation about revoking citizenship. But these actions are understood to be secondary, a senior source said, given most of the fighters are believed to be Australian-born and this would render them stateless.

The strategy considered most important at the highest levels of government is to enhance the powers of Australia's spy agency ASIS, allowing spies to better monitor the activities of Australians overseas.

With the support of Labor, Attorney-General George Brandis is expected to introduce new national security laws, including expanding digital spying powers, when Parliament sits again on July 7. This week Ms Bishop told parliament it was ''simply chilling'' to hear an Australian accented jihadist on a video urging others to join the fighting.

''Some [Australians] are directly involved in fighting while others are assuming leadership roles in terrorist organisations seeking to radicalise and find new recruits,'' Ms Bishop said.

Others were providing support for logistics of terrorist groups and the financing and procurement of weapons, she added.

''To put the current situation in perspective: approximately 30 Australians are believed to have engaged with al-Qaeda and the Taliban in Afghanistan prior to the NATO-led intervention [2001],'' Ms Bishop said. ''With five times that number already believed to be directly engaged in the Syria-Iraq conflict, the risks have increased exponentially.''