One of the 16-year-old boys arrested by counter-terrorism police in Sydney’s Bankstown yesterday had allegedly warned his mother he would do "something bigger" following the murder of police employee Curtis Cheng.

“When they come, I am going to do something to them that they have never seen before. I am going to do something bigger,” he allegedly told his mother.

Detectives allege he was referring to police raiding his home and the comment was a direct comparison with the murder of police worker Curtis Cheng.

Both teenagers fronted Parramatta Children's Court today and have been charged with preparation to commit a terrorist act, which carries a maximum of life imprisonment, and membership of a terrorist organisation.

One of the accused allegedly held a sign reading: "behead all those who insult the prophet" during a protest at Sydney's Hyde Park in 2012.

Police allege the two teenage boys had links to the Islamic State terror group and were preparing for an "imminent" attack.

The two boys allegedly went to a gun shop in Bankstown yesterday and purchased two bayonet-style knives, and then caught a bus to a location in Bankstown where they were arrested and the knives were seized.

Police believed an attack was imminent, NSW Police Force Acting Commissioner Catherine Burn told reporters in Sydney today, adding that police did not have specific information about the intended target.

"We believe the attack was inspired by Islamic State," Ms Burn said.

"I think that this arrest again demonstrates the type of environment that we are currently faced with," she said.

She declined to confirm reports the father of one of the teenagers is already in jail convicted of terror offences.

"We were well aware of these two 16-year-olds. We have been concerned about them," she said.

Police laid charges about 5am after holding the boys overnight.

This is the eleventh imminent attack prevented by the Joint Counter Terrorism in Australia, authorities say.

Police praised the Joint Counter-Terrorism team for their actions yesterday.

"Had we not been in the right place at the right time... certainly somebody, potentially today, would be, or another day, would be without their life," AFP Deputy Commissioner Michael Phelan told reporters.

Police believe the pair had been radicalised.

"I think they had potential radicalisation from potentially radicalised peers," Ms Burn said.

"We know that they have connections with people who are radicalised and who are of concern to us."

One of the accused came under notice when he refused to stand for the national anthem at East Hills High School.

As a 12-year-old he also took part in the 2012 Hyde Park riots, where he allegedly held a sign reading: "Behead all those who insult the prophet".

Ms Burn would not comment on reports of a note being found on one of the boys, as the matter is now before the courts.

A man being arrested near Fetherstone Street in Bankstown. (9NEWS)

"We do have evidence. That will come out in court," she said.

Hours after the arrests in Bankstown's Adnum Lane yesterday, the mother of one of the boys arrived at the police station and was also taken in for questioning.

She denied her son had any involvement.

"Nothing happened, he go fishing and nothing happened," she told 9NEWS.

The biological father of one of the accused told 9NEWS he was "absolutely shocked" by the allegations, saying the "news hit him like a tonne of bricks" yesterday.

Both teenagers will face court again in December.

Police maintain there is no ongoing threat to the public.