Five Australian teenagers have been arrested on suspicion of plotting a terrorist attack at a Veterans' Day ceremony that included targeting police officers.

The suspects included two 18-year-olds who are alleged to have been preparing an attack at the Anzac Day ceremony in Melbourne.

Another 18-year-old was arrested on weapons charges and two other men, aged 18 and 19, were in custody and assisting police.

Police said they believe the plot was inspired by the Islamic State group and was to have involved "edged weapons".

Anzac stands for the Australian and New Zealand Army Corps and on April 25 commemorates the Gallipoli campaign of First World War.

The arrests took place in Melbourne, where a joint counter-terrorism team served a total of seven warrants this morning. Police said they were conducting searches at properties.

Australia's government has raised the country's terror warning level in response to the domestic threat posed by supporters of the Islamic State group.

In September last year, the group's spokesman Abu Mohammed al-Adnani issued a message urging attacks abroad, specifically mentioning Australia.