Police arrested a 34-year-old man on Friday morning in Caringbah.
NSW Police Detective Superintendent Michael Sheehy said he will be charged with offences relating to membership of a terrorist group and collecting and making documents likely to facilitate a terrorist attack.
"He is posting a significant amount of material in respect of bombings, beheadings, manufacturing explosives and other material," Superintendent Sheehy told reporters on Friday.
"It is likely he was, and we'll suggest that he was, preparing to commit a terrorist act and that would have been an act of violence against law enforcement."
The man was charged with using a social media platform to distribute material which may offend, harass or menace in December 2020.
He was in custody for six months before he was released in July this year.
Superintendent Sheehy said police and government officials had engaged with the man to "attempt to deradicalise him" but he refused to engage in a program and continued to promote Islamic State material online.
"Due to his recent escalation in his activities it was necessary for us to act today and arrest him for those offences," he said.
Police have issued a search warrant at the man's home.