Court documents have revealed Australia's spy agency ASIO was fed information about two Sydney men who were plotting to carry out a terrorist attack on behalf of Islamic State.

Omar Al-Kutobi, 25, and Mohammad Kiad, 27, were under surveillance for about a month when they were arrested and charged with preparing to carry out a terrorist attack in February 2015.

Court documents reveal an informant tipped off the Joint Counter-Terrorism Team (JCCT) to the plot on February 10 and said the attack was imminent.

"The lions will depart to carry it out in a few hours," the JCCT was told.

The JCCT is a multi-agency taskforce comprising New South Wales Police, the Australian Federal Police and ASIO.

The same day, counter-terrorism police swarmed on the granny flat Al-Kutobi and Kiad shared in Fairfield and arrested the men.

The pair was arrested just minutes after they had filmed a video in which Al-Kutobi can be seen speaking Arabic in front of a home made Islamic State flag.

"I swear to God almighty, yellow people, there is no reproach between us," Al-Kutobi said in the video.

"You will only get from us the stabbing of your kidneys."

Officers also discovered a note which said "we are here to cut off your heads", along with home made napalm, a machete, a hunting knife and instructions and ingredients to make an improvised explosive device.

Informant helped thwart attack

The court documents state the pair was planning to target a Shiite prayer hall in western Sydney with an "incendiary device", but that plan was abandoned in favour of an alleged plot to attack a person or persons with a bladed weapon.

The documents also alleged Al-Kutobi and Kiad made an oath of allegiance to the leader of the Islamic State group and received instructions from an IS recruiter known as "Rahman", who was based in, or on the border of, Syria.

But the documents also reveal Rahman fed information about the two men to a person overseas who is known only as "Witness A".

Witness A then passed that information on to ASIO and the JCCT.

The NSW Supreme Court heard Rahman acted as an informant in return for money and refuge.

But a barrister acting for the Commonwealth told the court that fact was disputed by the Federal Government.

Videos played in court

The video of Al-Kutobi kneeling in front of the IS flag was played to the court.

Al-Kutobi is speaking Arabic on the video, and at times, Kiad can be heard responding.

Minutes later, both men were arrested and charged with acting in preparation for a terrorist act.

They have since pleaded guilty.

The two men the two men were committed to stand trial in February after they waived their rights to a committal hearing.

Kiad, 27, is a student from Kuwait, while Al-Kutobi, 25, is a refugee from Iraq.



Police footage of two separate improvised explosive device demonstrations were also shown. Prosecutors said the devices were made using substances found at the men's flat.

CCTV footage of Al-Kutobi and Kiad purchasing a hunting knife at a camping supplies store in Smithfield on the day of their arrest was also viewed.

The employee who served them has described it as a "run-of-the-mill sale".

The hearing continues.