About 20 Australia Federal Police (AFP) officers, including forensic investigators, surrounded a house in Revesby in Sydney’s southwest on Tuesday night and later appeared to be photographing the front yard and rooms inside.
A young man accompanied by three women was seen trying to return to the Revesby house but was restrained by AFP officers, before lashing out at media crews across the road.
AFP officers were seen taking brown exhibit bags into the house.
The latest raid follows the arrest of 16 suspects after raids in Sydney and Melbourne early on Tuesday morning.
Seven men arrested in Sydney were refused bail on Tuesday.
Authorities said the counter-terrorism arrests thwarted plans for a major attack.
None of the seven appeared in court and all have been remanded in custody for a further court hearing on Friday.
They have been charged with conspiracy to manufacture explosives.
In Victoria, two men will find out on Wednesday if they have been granted bail.
The remaining seven in Melbourne did not make a bail application and have been remanded in custody until January 31.
Prosecutors in court in Melbourne said Algerian-born Muslim cleric Abdul Benbrika, or Abu Bakr, was the leader of a group that is "committed to the cause of violent jihad".
The cleric was charged with directing activities of a terrorist organisation while the others were charges with membership.
During the raids in Sydney, one man was shot and wounded after he opened fire on police near a mosque in the south-western suburb of Green Valley at about 9am (AEDT).
His condition is listed as critical and he remains in Liverpool Hospital.
The man, aged in his 20s, was shot in the neck after he fired at least two shots at police when they approached him, according to authorities.
New South Wales Police Commissioner Ken Moroney said the early morning raids on houses in Sydney and Melbourne foiled plans for a large-scale terrorist attack.
He told ABC radio he is satisfied a joint operation by federal and state police had disrupted the final stages of an attack in Australia.
Hundreds of police from NSW, Victoria, the Australian Federal Police and intelligence agents from ASIO took part in the raids following a 16-month investigation.
The commissioner said the arrests took place in Wiley Park in Sydney and at addresses in Melbourne suburbs including Brunswick, Coburg and Broadmeadows, at around 2.30am (AEDT).
"This has nothing to do with ethnic origin, cultural beliefs or religious beliefs, this is about people preparing to commit an act of terrorism," said Mr Moroney.
The raids come after changes to Australia’s anti-terror laws were rushed through parliament last week.
Man shot
The man shot by police at Green Valley, one of seven arrested in Sydney, is being treated at Liverpool Hospital.
Police used a bomb disposal robot to investigate the contents of the bag the man was carrying, and said they found a handgun.
"The bag also contained papers but no explosives," said the AFP's Graeme Morgan.
An independent investigation team from the State Crime Command has been set up to look into the circumstances of the shooting.
Melbourne evidence
The Melbourne Magistrate's Court was told that police recorded about 240 hours of conversations between members of the group that included discussions about military jihad and martyrdom.
Detective Sergeant Chris Murray of the joint counter-terrorism team told the court that police picked up on one of the suspects asking for permission to become a martyr, and appearing impatient when told to wait.
Prosecutor Richard Maidment QC said suspects had discussed making bombs and had accumulated money, bomb-making chemicals and firearms.
He said members of the group had "no respect for human life" and believed "it is permitted in certain circumstances, in pursuit of violent jihad, to kill innocent women and children".
Terrorism laws
Australian Prime Minister John Howard said changes last week to anti-terrorism laws played a part in the arrests.
"We were advised that the change would strengthen the capacity of the authorities to respond to the situation that had been identified, and it is the view of the two police commissioners and the Victorian premier that that is precisely what happened," he said.
Victoria Police Chief Commissioner Christine Nixon said there could be more arrests.
"In terms of counter-terrorism, it's easily the biggest operation that's ever taken place in this country," she said.
An international terrorism expert said the threat from the domestic network has grown significantly in the past four years.
"There are at least four dozen Australians, mostly first- and second-generation Muslims, trained in Afghanistan and Pakistan who are today ideologically driven by the global developments in Iraq," said Singapore-based analyst Rohan Gunaratna.
Muslims fearful
Islamic leaders said they fear that anti-terrorism measures such as the raids will spark renewed hatred of Muslims Australia.
Muslims are frightened, said Australian Federation of Islamic Councils chief executive Amjad Mehboob.
"It's two-fold, they are frightened about the events that are taking place around them, like everybody else," he said.
"But they are doubly concerned about the fallout. This is not going to end speculation about the Muslims and the religious and racial profiling of people which we fear from the new terrorism laws."
Other leaders said there had been an increase in hate crimes in Melbourne and Sydney.
"Crimes range from people being spat on, to assaults ... headscarves being ripped off," said Waleed Aly of the Islamic Councils of Victoria.
But he said he hopes the arrests will ease suspicions of Muslims and give those charged a chance to defend themselves.
Muslims number about 300,000 of Australia's population of 20 million people.