Australian counter-terrorism police have arrested a man who officials say was planning to advise the Islamic State group on how to develop missiles.

Australian Federal Police arrested the 42-year-old electrician during a raid at his home in the rural New South Wales town of Young following an 18-month investigation, Police Commissioner Andrew Colvin told reporters in Canberra.

Haisem Zahab, an Australian-born citizen, is accused of researching and designing a laser warning device that could alert IS to incoming guided weapons used by coalition forces in Syria and Iraq, Mr Colvin said.

He is also accused of researching, designing and modelling systems to assist the extremist group's efforts to develop their own long-range guided missiles.

Zahab was not planning any attack in Australia and is believed to have been working alone, Mr Colvin said.

"We will be alleging that the material he was intending to provide to Isil, the research that he was doing, was credible," he said.

Zahab is facing several charges, including two related to supporting extremist groups overseas. Those charges carry a maximum penalty of life in prison.

He appeared briefly in a local court in Young and did not apply for bail. His next court appearance is March 8.

Since Australia's terrorist threat level was elevated in September 2014, the government says there have been 12 extremist plots foiled by police.