One of the arrested men was in critical condition in hospital after being shot by police when he opened fire during early morning raids in Sydney and Melbourne. Police seized chemicals, firearms, computers, backpacks and travel documents in the raids.
The loose-knit group did not have a target, but it was trying to buy chemicals similar to those used in the London bombings in July, for a "catastrophic" attack, police said.
"I am satisfied that we have disrupted what I would regard as the final stages of a terrorist attack or the launch of a terrorist attack in Australia," said New South Wales state Police Commissioner Ken Moroney.
During a court appearance, police said Muslim cleric Abu Bakr, who called bin Laden a "great man" that defends Muslims fighting US forces in Iraq and Afghanistan, was the spiritual leader of the group. He was remanded in custody until January 31.
The Melbourne court was told the men had engaged in military-like training in rural Australia and that one man had expressed a desire to become a "martyr" in Australia.
Police said they had 240 hours of telephone intercepts and recordings of the group.