The loosely defined group of teenagers had been closely monitored by counter-terrorism police since the April 15 stabbing in Wakeley, Sydney.
Initially satisfied with watching, police became concerned this week by escalating behaviour within the group, sparking fears an attack could occur before officers could intervene.
The police raids and arrests involved more than 400 officers. (Nsw Police/AAP PHOTOS)
That sparked more than a dozen raids across southwestern Sydney on Wednesday involving in excess of 400 state and federal police.
Seven teenagers aged 15 to 17 were arrested with another five said to be assisting police with their inquiries.
The group, while loosely connected, adhered to "a religiously motivated violent extremist ideology", NSW Police Deputy Commissioner David Hudson said.
He hoped the raids would reveal enough evidence to lay charges against the teens in custody.
"We would have liked a lot more time," Mr Hudson told reporters on Wednesday.
"But we decided yesterday that our hands had been forced by the enduring risk that this group presented to the community of NSW."
Bishop Mar Mari Emmanuel was stabbed while giving a sermon at a church in Sydney. (HANDOUT/Christ of Good Shepherd Church)
The raids come a little over a week since the attack on Assyrian bishop Mar Mari Emmanuel and priest Isaac Royel during a live-streamed service at the Christ the Good Shepherd Church.
The accused teenager had received intermittent treatment for mental health issues for some years, his lawyer said during an initial court appearance on Friday.
His charge of committing a terrorist act carries a maximum penalty of life imprisonment.
No specific targets had been nominated but the ongoing threat and loose nature of the group including some splinter sections, alarmed authorities, Mr Hudson said.
Investigations were ongoing into the involvement of any adult or if anyone acted as a ringleader or figurehead of the group.
Federal Police Deputy Commissioner Krissy Barrett stressed there was no link to Anzac Day commemorations or any religious holiday and there was no immediate danger to the community.
Police say they made the arrests after fears grew there could be a terror attack. (Nsw Police/AAP PHOTOS)
She emphasised officers were targeting the youths based on alleged criminality, not their background.
"We target radicalisation, not religion," she said.
Leaders from Sydney's Lebanese Muslim community have said the family of the teenager arrested last week did not believe he had been radicalised online before the attack.
The counter-terrorism squad involved in Wednesday's arrests is made up of state and federal police as well as officials from ASIO and the NSW Crime Commission.
Several people have also been arrested and charged over riots that broke out outside the church following the stabbing.
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