One of Australia's most wanted terrorists, Neil Prakash, has been arrested in Turkey months after a drone strike that was believed to have killed him in Iraq.

His arrest by Australian and Turkish authorities has raised the possibility that he may be extradited to Australia to face a raft of charges following his three-year stint as one of Islamic State's most influential recruiters, propagandists and attack planners.

The federal government said in May that the former Melbourne man, who has been involved in several foiled Australian terrorist plots, was killed following the targeted strike.

However, a New York Times article published on Thursday said he was wounded, but survived.