Three arrested over Australia terror shooting set free

Prime Minister Malcolm Turnbull has said the attack "appears to have been an act of terrorism".

Sydney: Three of four people arrested in Australia over a terror-linked murder by a radicalised teenager have been released without charge in a move police admitted today was "incredibly frustrating".

The four, aged between 16 and 22, were seized during large-scale dawn raids across Sydney on Wednesday after police employee Curtis Cheng was shot outside New South Wales state police headquarters last week.

Farhad Jabar, 15, shot the 58-year-old in the back of the head while reportedly shouting religious slogans before being gunned down in an exchange of fire with police.

The Sydney Morning Herald, citing police sources, said Farhad Jabar was allegedly recruited by a group of extremists in western Sydney, who thought they were under too much surveillance to carry out the murder themselves.

New South Wales state Police Commissioner Andrew Scipione said it was clear Farhad Jabar was radicalised and had "terrorist links," but there was not enough evidence to hold three of the four men detained. An 18-year-old remains behind bars.

"Only when we have sufficient evidence that can put us in a position where we can charge an offender" can suspects be brought to justice, he told commercial radio station 2GB.

"We've taken a lot of material during the course of these searches and that's going to take us a long time to go through... It's incredibly frustrating for us."

Prime Minister Malcolm Turnbull has said the attack "appears to have been an act of terrorism".

The Sydney Daily Telegraph reported that two of the four detained were linked to an alleged plot to behead a "non-believer" in Sydney last year ordered by Islamic State jihadists, which police foiled.

It also said CCTV footage from Parramatta Mosque in western Sydney showed Jabar meeting several men in the lead-up to the killing. Police have yet to confirm this or why Cheng, a police accountant, was targeted.

Canberra is concerned about the prospect of lone-wolf attacks by individuals inspired by groups such as Islamic State, and has cracked down on Australians attempting to travel to conflict zones including Syria and Iraq.