A rural NSW electrician faces life in jail for allegedly using his technical skills to help Islamic State develop "high-tech weapons capability", including the ability to detect coalition guided missiles in Syria and Iraq.

Haisem Zahab, 42, was arrested at his house in Young in southern NSW on Tuesday and charged with two counts of foreign incursion and recruitment which carry a maximum penalty of life imprisonment.

The charge relates to anyone who "engages in a hostile activity in a foreign country".

Australian Federal Police Commissioner Andrew Colvin said Zahab's research was sophisticated and credible and officers were "forensically" searching the property for further evidence.

A man was arrested on Tuesday after more than 20 Australian Federal Police officers swarmed a Young property.

"We will leave no stone unturned in what we're looking for," Mr Colvin said.

Zahab, an Australian-born citizen, did not apply for bail when he appeared in Young Local Court on Tuesday and it was formally refused.

He's next due to appear in Parramatta Local Court on March 8.

Prime Minister Malcolm Turnbull said the arrest did not relate to any planned domestic attack and there was no threat to the community.

Tuesday's arrest was the result of an 18-month police investigation.

"Police will allege that this individual, in a regional centre, acted with intent to provide ISIL with ... the technical capability, and high-tech capability, to detect and develop missiles," Mr Turnbull told reporters in Canberra.

"This highlights that terrorism, support for terrorist groups, and Islamist extremism is not limited to our major cities."

Justice Minister Michael Keenan said the arrest was the result of an 18-month investigation.

Mr Colvin said Zahab allegedly researched and designed a laser warning device to help warn against incoming guided munitions used by coalition forces in Syria and Iraq.

"Secondly, we will also allege that he has been researching, designing and modelling systems to assist ISIL's efforts to develop their own long-range guided missile capabilities," Mr Colvin said.

Zahab is alleged to have networks and contacts in the Islamic State group, although Mr Colvin said he acted alone and had never been to Syria or Iraq.

Mr Colvin said those contacts were not necessarily in conflict zones "but in other parts of the world as well and he has been relying on them to pass this information".

Mr Colvin said Zahab is believed to have been in Young "for a while" and was arrested in front of his family, including children, at a house in the rural town which is known as the cherry capital of Australia.

The community is reeling from the arrest.

"It's a shock, for sure," former mayor Stuart Freudenstein told AAP.

Mr Freudenstein said there was not been a burgeoning Muslim community in the region, despite some media reports.

"I'm not aware of the numbers increasing that much. There are a few that are sprinkled throughout the community," he said.

However, an Islamic school for Kindergarten to Year 8 students is expected to open in the area this year to cater for the local Muslim population.