Following his annual threat assessment on Wednesday evening, ASIO director-general Mike Burgess said the system in place should be reviewed, and that he is in talks with Home Affairs Department Secretary Stephanie Foster on how it could be overhauled.
The nation's terrorism threat level is probable, meaning there is a greater than 50 per cent chance of an onshore attack, or attack planning in the next 12 months.
But Mr Burgess said the level "does not tell the full story".
"I do not believe the system was designed for a situation like the one we now face," he said.
"This is where a degrading security environment intersects with a diverse one.
"In the current climate, it is too simplistic to assume there is a single terrorism threat or a most likely terrorist threat."
A minute's silence was held ahead of Mr Burgess' address, for the victims of Australia's worst ever terror attack at Bondi, which targeted Jewish Australians.
People attending the speech in Canberra - which included senior defence force officers, federal police and politicians - were shown a video which collated several news reports depicting fraying social cohesion in Australia.
It showed pro-Palestinian protesters clashing with police, the march over the Sydney Harbour Bridge, white nationalists, neo-Nazis and the aftermath of the Bondi terror attack.
As the royal commission into anti-Semitism examines intelligence agencies in the aftermath of the Bondi attack, Mr Burgess said even as surging espionage and foreign interference demanded more attention "countering terrorism remained a priority".
"We increased CT (counter terrorism) resourcing when we raised the threat level in 2024 and it continued to grow in the months before Bondi," he said.
"Resourcing followed the threat."
He also revealed an Australian based in Iran and an ex-resident now in Iraq masterminded firebombings of a Jewish deli in Sydney and a synagogue in Melbourne.
ASIO has foiled 31 major terrorism plots since 2014, with Mr Burgess revealing 14 cases since the Bondi attack last December have been resolved.
