The Islamic State terrorist group (IS) could establish a caliphate in the southern Philippines, according to Australia's Foreign Minister Julie Bishop.

The leader of the Abu Sayyaf terrorist group has been declared an Emir, or leader, by IS in the Middle East.

"There is concern ISIS may well seek to declare a caliphate in the southern Philippines," Ms Bishop told Sky News.

"This brings the threat right to our doorstep."

Ms Bishop has described Abu Sayyaf as a "particularly dangerous" terrorist group.

She said about 600 fighters from South-East Asia were in the Middle East and could soon return to the region.

"That's why we've been ensuring our security, law enforcement and intelligence agencies ... are cooperating so closely with other countries to stamp out this terrorist threat in our region," Ms Bishop said.

"We don't want to see it re-emerge elsewhere in the world, otherwise we'll be back in a few years' time talking about how to defeat a caliphate in the southern Philippines for example. "

Australian authorities are working with Indonesia, Malaysia and the Philippines on security issues.