Australian Islamic State (IS) fighter Khaled Sharrouf has become the first dual national to be stripped of their citizenship under the Federal Government's anti-terror laws.

National security sources confirmed to the ABC the 35-year-old's citizenship had been revoked, meaning he cannot legally return to Australia if he chooses to leave the Middle East.

The convicted terrorist slipped out of Australia in 2013 using his brother's passport and travelled to Syria with fellow Sydney man Mohamed Elomar to join the Islamic State terrorist group.

The pair shot to global infamy the following year when photos were posted online of them, and Sharrouf's seven-year-old son, holding the severed heads of pro-Syrian Government soldiers.

Amid concerns about the threat posed by returning foreign fighters, Federal Parliament passed tough counter-terrorism laws in 2015, giving the Immigration Minister the power to strip the citizenship from dual nationals involved in terrorism.

A spokeswoman for Immigration Minister Peter Dutton confirmed a person involved in overseas terrorism had had their citizenship cancelled, but would not reveal that person's identity.

Sharrouf is one of Australia's most notorious terrorists. Arrested in 2005 as part of Operation Pendennis, he was later convicted over the biggest terrorism plot in Australian history and served nearly four years in prison.

After leaving Australia to join IS, he and Elomar posted messages on social media chronicling their extremist behaviour and were accused of enslaving women from the Yazidi religious minority in northern Iraq.

The pair was reportedly killed in a drone strike in Mosul in 2015, but it was later confirmed that Sharrouf had in fact survived.

Sharrouf's wife Tara Nettleton and five Australian-born children joined him when he moved to the Middle East. Nettleton has since died and the fate of their children remains unclear.

This is the first time the controversial legislation has been used and can be tested. Lawyers have previously raised concerns about its constitutionality, fairness and transparency.

The Federal Government believes more than 100 Australians are fighting alongside terrorist groups in Iraq and Syria. Many of them could be targeted under the anti-terror legislation.