Indonesian counter-terrorism police in Bali say they have shot dead five men who had identified and surveyed targets for a terrorist attack on the island.

Heavily-armed officers from Indonesia's Detachment 88 anti-terror unit conducted two raids overnight.

Police say three suspects were shot and killed at a hotel in Sanur, while another two died during a raid in Denpasar.

One of the men was suspected of involvement in a bank robbery in Sumatra in 2010 which was staged to raise money for terrorist activity.

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Police say they had the group in Bali under surveillance for about a month and saw them visit a gold shop on the way out to the popular surfing spot Uluwatu, as well as a money changer in the tourist hub of Kuta.

The head of the national counter-terrorism unit has told the ABC the men were planning attacks in several locations on the popular holiday island.

Ansyaad Mbai has confirmed there were several targets for acts of terrorism and that robbery was also part of the plan.

Police say they found two hand guns and dozens of rounds of ammunition during the raids.

Witnesses say more than 100 members of Detachment 88 were involved in the operations.

National police spokesman Rafli Amar said the suspects died in shoot-outs with police.

"All of them died in shoot-outs. They opened fire at the police while trying to escape," the AFP news agency quoted him as saying.

Travel advisory

Australia's Department of Foreign Affairs and Trade says travellers should avoid Indonesia due to the continued threat of terrorism.

David Windsor, the acting assistant secretary from the Consular Policy Branch, says people planning to visit Indonesia should read the Smart Traveller website.

"Now if you do decide to travel to Indonesia, you should exercise great care, particularly around locations that have a low level of protective security and avoid places known to be possible terrorist targets," he said.

"We set out a lot of detail in our travel advice and we really do strongly recommend everyone reads that travel advice as well as also going online and registering their travel."