Australian Police on Friday dropped terrorism charges against Sri Lankan students in Sydney, Mohamed Kamer Nizamdeen, who was accused of an assassination plot targeting Australian politicians, Australian media reported.

Nizamdeen, a 25-year-old PhD student, was charged with creating a document in connection with preparing for a terrorist act but was released on bail on September 28 after spending four weeks behind bars.

Lawyer of the student said that they will now seek student’s legal costs and compensation.

Mr Nizamdeen, a contractor at the University of NSW, was not present in Sydney's Central Local Court on Friday when prosecutors withdrew the charge after which his lawyer, Moustafa Kheir, said he would apply for his legal costs as well as take action in the NSW Supreme Court.

"What authorities have done to this young man is absolutely unforgivable," Mr Kheir told reporters outside the court.

"We will be seeking justice for him in the NSW Supreme Court” SBC news agency said quoting Kheir.

"It's a terrible experience, as a young man who has done everything right in life, he has gone through supermax jail in unforgivable circumstances."

Mr Nizamdeen's costs application was set down for hearing on November 23 in Central Local Court, his lawyer told reporters.

Nizamdeen spent about last four weeks in jail before being bailed last month. His family and supporters maintained his innocence, and the case prompted protests in his hometown in Sri Lanka.

Nizamdeen is in Australia on a student visa while he completes his studies.

He had no criminal history, and he was promoted by the University of New South Wales in its advertising. Nizamdeen also worked as a contractor for the university.

A court earlier heard that no extremist material was found on his computer or mobile phone.