INDONESIA authorities say a man killed in a shootout with police in Bali was connected to a terror cell.

One of the five men killed in two separate shootouts with police in Bali had links to a terror cell found training at a paramilitary camp in Aceh two years ago, they said.

Australia's Department of Foreign Affairs and Trade yesterday updated its travel advice in response to the "disruption of (an) alleged terrorist cell in Bali".

The overall travel advice level has not been upgraded, however, and continues to advise Australians to reconsider their need to travel to Indonesia.

National police spokesman Saud Usman Nasution confirmed earlier yesterday that the group killed in raids at addresses in Sanur and Denpasar on Sunday night were in the final stages of planning heists at locations in Bali heavily frequented by tourists.

Money raised from the robberies was to be used to fund terrorist activities, he said.

A number of handguns and ammunition have also been recovered from both addresses.

The leader of the group, a 32-year-old identified only as HN, had been on Indonesia's most wanted list for two years and was believed to have been involved in an armed robbery of the CIMB Niaga bank in Medan in North Sumatra in 2010.

Petrus Golose, the director of the Indonesian government's National Board on Combating Terrorism, later confirmed HN, whom he referred to as "Hilman", was also linked to deceased terrorist Imam Samudra who was executed in 2008 for his role in the 2002 Bali bombings.

"One of the men who was shot (is known as) Hilman. He was Imam Samudra's man," Mr Golose reportedly told the Kompas news website.

"He has also met with the leaders of Jamaah Ansharut Tauhid," he said, referring to the jihadist group founded by jailed terrorist Abu Bakar Bashir.

Inspector-General Nasution earlier said that HN was also wanted in connection with a terror cell discovered in Aceh in 2010, which had been planning to carry out attacks on Western targets.

"There's definitely a connection," he said.

The Aceh camp was set up by Bashir, the former spiritual leader of Jemaah Islamiyah and the group blamed for the 2002 Bali bombings.

Bashir is serving 15 years in prison for his involvement in the Aceh network.

Inspector-General Nasution added that robberies planned by the group killed on Sunday had posed a risk to tourists.

They had scoped out several potential targets - all in areas extremely popular with tourists - including a moneychanger on Jalan Sriwijaya, Kuta, a jewellery store on Jalan Uluwatu, Jimbaran, and a Denpasar Cafe named Lavida Loca.

"The cafe must have a lot of foreigners and the moneychanger, too," Inspector-General Nasution said.

The group was in the final stages of planning the heists when about 100 heavily-armed Detachment 88 officers swooped on Sunday night.

They had been tailing the group for about a month.

Witnesses reported gunshots could be heard for several minutes as officers raided the Lhaksmi Hotel on Jalan Danau Poso in the Sanur area about 9pm local time (midnight AEDT).

"I heard more than 10 shots," one witness, who only wanted to be identified as Egi, said.

Another two men were shot and killed during a raid at an address on Jalan Gunung Soputan in Denpasar, about 15km from the hotel in Sanur.

A number of firearms were recovered from both addresses.

Inspector-General Nasution did not rule out the possibility that the group may have been planning attacks for Thursday, on the eve of Nyepi, or the annual Day of Silence which marks the Balinese Hindu New Year.

Balinese traditionally hold large parades on the eve of Nyepi, which also draw large numbers of tourists.

However, the latest development is a stark reminder of the lingering threat of terrorism in Indonesia and comes ahead of the 10th anniversary later this year of the Bali bombings that killed 202 people, including 88 Australians.

The bodies of the five men have been flown to Jakarta where authorities will carry out autopsies.

Police said they were still hunting a number of suspects connected to the group who remained on the run in Bali.