The report, to be released on Wednesday, will also reveal last year's cyber attack on the Bureau of Meteorology was the work of a foreign power, which managed to install malicious software and steal sensitive documents.
Dan Tehan, the minister assisting the prime minister for cyber security, wouldn't specify which country, but said it showed cyber espionage was alive and well.
"We have to make sure that we're taking all the steps necessary to keep us safe, because the threat is there and the threat is real," he told ABC radio.
The Australian Cyber Security Centre says a recent series of brazen attacks on high-profile entities shows there's a willingness to use disruptive and destructive measures to seriously impeded or embarrass organisations and governments.
Local government networks suffered 1095 serious cyber assaults in the 18 months to June 30 this year, The Australian reported on Wednesday.
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But the 2016 Threat Report warns this can rise and estimates that within three years terrorists will be able to compromise networks with destructive effect.
Mr Tehan said the threat of a cyber attack from terrorists is currently ranked low but acknowledged Australia's digital integrity was being increasingly tested.
"We are ahead of the terrorists now and that is where we must remain," he wrote in The Australian.
