The Australian Federation of Islamic Councils says the country's Muslim population – about 500,000 nationally – will be unfairly targeted and face increased prejudice due to the high terror alert announced on Friday.

Federation spokesman Keysar Trad said raising Australia's threat level to the point that a terrorist attack on Australian soil is considered likely will be a "dog whistle to hate writers in the media who will write more negative rhetoric directed at the Muslim community".

"This only increases pressure on the Muslim community and makes it even more difficult to feel like an Australian," he said.

Mr Trad said Muslims already faced unfair targeting by law enforcement and security authorities, but "what happens is that increases in times like this".

Australian Islamic Mission secretary Seyed Sheriffdeen said Friday's decision was an overreaction, and raised suspicion that it was a tactic designed to "implant fear in the minds of Australians".

"We are going back to the Howard era here, terrorising the minds of people unnecessarily," he said.

"People going to Syria and Iraq make up a very marginal number of Muslims ... ISIS are actually anti-Muslims and what they are doing is lunacy."

Dr Sheriffdeen urged the Australian government to instead address youth unemployment and work on engaging with young people to prevent them accessing extremist views.

Prime Minister Tony Abbott has denied that raising the national security threat had anything to do with religion.

"This is about ensuring that this marvellous country of ours ... continues to be just that."