One 18-year-old has been charged with conspiring to commit a terrorist act.
The men were planning to target police at an ANZAC (Australian and New Zealand Army Corps) memorial event in Melbourne next week, police said.
About 200 police officers took part in the counter-terrorism operation in Melbourne early on Saturday, April 18.
Acting Deputy Police Commissioner Neil Gaughan told reporters that evidence suggested the suspects had been influenced by ISIS.
One of the men, Sevdet Besim, appeared briefly in Melbourne Magistrates Court on April 18.
Victoria state police say a second man held on terrorism-related offences is also likely to be charged.
A third man, also 18, was arrested on weapons charges and two other teenagers, aged 18 and 19, were in custody and assisting with inquiries.
Officials referred to possible attacks using “edged weapons”, but Neil Gaughan said there was no evidence to suggest there was “a planned beheading”.
The men were “associates” of Abdul Numan Haider, a teenager shot dead in September 2014 after he stabbed two officers, police said.
ANZAC Day is an annual day of remembrance for servicemen and women from Australia and New Zealand. A series of events are planned for next week to coincide with the 100th anniversary of the landings at Gallipoli, Turkey.
Australian PM Tony Abbott urged people to turn up to memorial events as planned.
“The best thing we can do to counter terrorism… as individuals is to lead normal lives,” he said, adding that the authorities were doing everything possible to keep people safe.
Police said that although officers were the primary target of the alleged plot there was also a threat to the public.
Search operations were continuing at several addresses in the south-east of Melbourne on April 18.
Daniel Andrews, the premier of Victoria, said the police presence at ANZAC Day events would be “significantly increased”.
“These individuals arrested today are not people of faith, they don’t represent any culture,” he added.
“This is not an issue of how you pray or where you were born… this is simply evil, plain and simple.”
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