Australian Prime Minister John Howard says he will double the staff at the main intelligence agency to counter the threat of domestic terrorism.
Mr Howard has doubled the spy agency's budget since 2001
Staff at the Australian Security Intelligence Organisation will rise from 980 to 1,860 over five years.
Mr Howard said July's London bombings had driven home the fact that terrorist attacks could also happen in Australia.
The move comes amid controversy over plans to increase police powers as part of new anti-terrorism laws.
Mr Howard said the best means to counter terrorism was good intelligence.
"London drove home, more than any other terrorist attack, drove it home to us that it could happen here," he said.
Fifty-two people were killed in London in July.
"It's one thing to have the capacity to respond effectively in the event of a terrorist attack... it's entirely of another order to have the capacity to anticipate events," Mr Howard said.
The premier has already doubled the budget of the intelligence agency since the 11 September 2001 attacks in the United States.
Mr Howard's announcement follows the leaking of government plans for tough new anti-terrorism laws.
According to the leaked draft, Australian police would be authorised to use lethal force if they believed a terrorist attack was imminent and they would be able to detain suspects without charge for up to 14 days.
Some Muslims have expressed fear that the measures could be targeted at their community and spread intolerance.