Prime Minister Tony Abbott has also announced it will be an offence to travel to a battle region overseas without a valid reason.
"Over the last couple of months every Australian has been shocked at the evidence on the internet of Australians participating in terrorist activities in Syria, Iraq and elsewhere," he said in Canberra on Tuesday.
"What we are now acutely conscious of is the danger posed back here in Australia, by people returning to Australia who have been radicalised and militarised by the experience of working with terrorist organisations overseas."
Mr Abbott said the terrorist threat was as high as it had ever been.
Attorney-General George Brandis said new anti-terrorism laws would be brought to the parliament in the Spring sittings.
Talks will continue with telecommunications companies on the long-term storage of metadata which can be accessed by intelligence agencies to investigate terrorists.
The legislation sits alongside the extra $630 million of funds earmarked to boost counter-terrorism work by the Australian Secret Intelligence Service (ASIS), AFP, ASIO and Customs and Border Protection.
Legislation to avoid 'home-grown terrorists'
Foreign Minister Julie Bishop said preventing Australian citizens from becoming involved in terrorist activities was one of Australia's highest national security priorities.
"We are deeply concerned this security challenge will mean that Australian citizens fighting in these conflicts overseas will return to this country as hardened home-grown terrorists who may use the experiences and skills they have gained to carry out attacks in this country," she said.
Before the NATO-led mission in Afghanistan, there were 30 Australians involved with extremists - 25 of whom returned to Australia and two-thirds of whom became involved in terrorist activities.
"Five times that number are now of interest, fighting overseas or becoming involved," Ms Bishop said.
Mr Abbott said the "ordinary range" of security monitors would provide a safeguard for innocent Australians returning from designated locations.
But the biggest protection would come in the form of negotiations with the Labor opposition, which had traditionally offered bipartisan support on security issues, he said.
"Democracy in the end is the most important safeguard when it comes to any of these things," he said.
"We will need to get (Labor) onside, we will need to liaise with them and other members of the parliament to get the legislation through."
Mr Abbott said the extra funding would come from the budget.
"I know we are under a lot of budget pressure but the community won't thank us if we skimp unreasonably in the area of national security," Mr Abbott said.
Racial Discrimination Act changes 'off the table'
Mr Abbott said he still believed the Racial Discrimination Act needed to be changed.
"But I want the communities of our country to be our friend, not our critic," he said.
"I want to work with the communities of our country as `Team Australia' here.
"The government's perfectly reasonable attempt to amend Section 18C has become a complication we just don't need and we won't proceed with."
Opposition leader Bill Shorten said Labor would take up the offer of a briefing on the measures from the government.
But he also said Mr Abbott had used the cover of the new counter-terrorism measures to suddenly drop the controversial changes to section 18C of the discrimination act promoted by Senator Brandis.
The laws would:
- broaden the listing criteria for terrorist organisations to ensure advocacy of terrorist acts includes the promotion and encouragement of terrorism
- make it easier to arrest terrorists by lowering the threshold for arrest without warrant for terrorism offences
- extend ASIO's questioning and detention powers beyond July 2016 when they were scheduled to expire
- extend Australian Federal Police (AFP) stop, search and seizure powers in relation to terrorist acts and offences beyond December 2015
- make it easier to prosecute foreign fighters
- make it an offence to participate in terrorist training
- enable ASIO to request the suspension of an Australian passport or foreign passport for a dual national.