"The threat is real. It's a matter of when will this happen," veteran Australian Security Intelligence Organisation operative Michael Roach told national ABC television on Wednesday, sparking controversy by saying racial profiling was inevitable at such a time.
Race should be taken into account by counter-terrorism police targeting suspects, he said.
"Unfortunately, Middle Eastern people are going to be approached more often than not - and that's just the way it goes at the moment," he said.
Roach, who retired recently after a 30-year career in intelligence, said Muslim militants in Sydney and Melbourne "have military training, they have precision with regard to their planning, their techniques and their methodologies".
"They are divided into groups within the cell structures, for example, having the coordinator of the group down to those people who actually will deliver the bomb."
Federal police chief Mick Keelty confirmed the figure of around 60 extremist suspects, some having trained in Pakistan and Afghanistan, but said he was concerned that the entire Islamic community would be labelled suspect.
"One of the things I fear is that we are marginalising the Islamic community by broad-brush stereotyping," he said.
"We are focused on the people who we are aware have trained overseas. We are not focused on the Islamic community per se."
Attorney-General Philip Ruddock rejected the idea of racial profiling, saying police "target activity which they believe would characterise somebody as an extremist who might pose a risk for the broader Australian community".
Waleed Aly, from the Islamic Council of Victoria state, warned that using negative stereotypes would only alienate the Muslim community.
"There's no question that this sort of suggestion will create very, very strong feelings of suspicion and fear within sections of the community that are going to be now explicitly targeted if this is followed through," he said.
Prime Minister John Howard told reporters it was well-known that "there are some people in this country who trained overseas with terrorist organisations" before it was made a criminal offence.
"But I want to assure the Australian public that the agencies involved are doing the right thing in keeping an eye on the people concerned."