The level was raised in 2014, spurred by concerns over the number of Australians believed to be fighting overseas with Islamist militant groups and the likelihood of terror attacks by those radicalised in Iraq or Syria. But spy agency the Australian Security Intelligence Organisation (ASIO) said the factors prompting the threat level no longer existed or only persisted to a lesser degree.

"While Australia remains a potential terrorist target, there are fewer extremists with the intention to conduct an attack onshore," Mike Burgess, its director general of security, told reporters.

The change did not mean all terror threats had been extinguished, Burgess said, however.