Police have charged a third man arrested in last weekend's terror raids in Sydney.

Key points: 39yo man accused of possessing prohibited weapon

39yo man accused of possessing prohibited weapon Two other men arrested in the same raids have faced court over aeroplane attack plan

Two other men arrested in the same raids have faced court over aeroplane attack plan Not clear if weapons charge linked to terror plot

Khaled Merhi, 39, was charged by NSW Police and the Australian Federal Police with one count of possessing a prohibited weapon and released on bail to face court later this month.

It has not been revealed by police whether the charge is connected to any alleged terrorist plots.

He was driven out of the Sydney Police Centre shortly before 5:00pm on Sunday.

Merhi had been in police custody for eight days, with authorities using special terrorism powers to hold him.

Khaled Khayat and Mahmoud Khayat have been remanded in custody to appear in court again in November.

Merhi's brother, Abdul El Karim Merhi, was also arrested in the raid but police released him without charge on Tuesday night.

The Australian Federal Police have called the plan "one of the most sophisticated terror plots attempted on Australian soil".

AFP, ASIO and New South Wales Police conducted anti-terror raids in Surry Hills. ( ABC News: Chloe Hart )

IS directives to make explosive device, toxic bomb

Authorities will allege they stopped two plans: the first to blow up a passenger plane with an improvised explosive device (IED) concealed in a meat grinder, and another to unleash a deadly gas bomb.

The men charged over the alleged terrorist plot have deep connections to Islamic State and police will allege the IED had been built under instructions from a senior IS controller in Syria and was to be planted in the luggage of a brother of one of the accused on the Etihad flight out of Sydney on July 15. Police said the brother was not aware of the plan.

Police said the IED was a "high-end military-grade explosive".

Police allege it was Khaled Khayat's intention for the IED to be taken onto the plane, but that it did not get past baggage check-in, and Khaled Khayat removed it from the airport and dismantled it.

Federal and state police officers searching a house in Surry Hills. ( AAP: Sam Mooy )

A second plan was then hatched to create a toxic hydrogen sulphide bomb, also a directive from an IS controller, they alleged.

Preliminary discussions were allegedly had about where and when to use it, with closed crowded spaces such as public transport mentioned.

However, authorities also said no concrete plans were made and the device was not close to being functional.

On July 26, UK and US intelligence agencies tipped off their counterparts in Australia about the alleged plot, and subsequently, the New South Wales Joint Counter-Terrorism Team (JCTT) was alerted.

The JCTT pounced two days later and conducted a series of raids in Surry Hills, Wiley Park, Lakemba and Punchbowl and arrested the four men.