A Counter Terrorism Online Centre will be opened in Sydney on Friday, which will track national security threats and extremism from a single hub.
The centre will combine ASIO and the Australian Federal Police to monitor radicalisation and online terrorism threats.
The federal government set aside $74 million in May's federal budget to set up the centre.
The intelligence hub will also be a single-entry point for overseas agencies to provide information about potential national security threats taking place online.
It will also work with law enforcement agencies as part of investigations.
ASIO director-general Mike Burgess said the extra facilities were needed to counter growing levels of online extremism.
"In a security environment where radicalisation increasingly occurs online, and extremists increasingly engage with each other in encrypted chat groups, ASIO and our partners must be online too," he said.
"Online operations are often the only way we can identify and engage with these individuals to understand their intent, capability, identity and targets."
Operatives who will be part of the centre will be trained to identify potential terrorists or those at risk of being radicalised by extremist ideology.
AFP Commissioner Krissy Barrett said the centre would be an early-warning system for counter-terrorism teams about threats online.
"Law enforcement is dealing with a grievance generation, who are angry and feel powerless but are willing to show their power by exerting acts of violence, consuming violent extremist material or joining sadistic online groups," she said.
"(The centre) does not replace existing terrorism structures or investigations but it puts a magnifying glass over online hate-breeding grounds and allows investigators to identify and focus on those who are at risk or are causing risk."
Home Affairs Minister Tony Burke said the online threat centre would build on similar intelligence hubs for cybercrime and child exploitation.
"The capability we've always had to monitor extremists in the meeting room now extends to the chat room," he said.
"The (centre) will go where the threat is, regardless of ideology, online location, or actors."
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