Australia's teen jihadist Jake Bilardi was preparing to attack cafes and shopping centres in Melbourne with bombs, knives and hand grenades last year before rethinking and flying to Iraq where he is believed to have blown himself up in an Islamic State suicide mission.

The government is now seeking an urgent briefing from national security and law enforcement agencies after police searched his Melbourne home and discovered chemicals that could be used to construct an explosive device, after he left the country.

Australian authorities were not aware of the dangerous radicalisation of the 18-year-old school dropout until after he had left the country last August. In October, two months after his departure for Iraq, foreign minister Julie Bishop cancelled his Australian passport.

She said the government was trying to independently verify Mr Bilardi's death but had been unable to do so last night.

"The Australian authorities have had reason to have Mr Bilardi under surveillance for quite some time however when he started in Iraq and Syria with ISIL and Daesh, it's very hard for us to keep track of him," the minister said, referring to the other names for terrorist group Islamic State.

She described foreign fighters as the government's "highest national security priority" because of the fear they will return home and attempt to carry out attacks.

According to unconfirmed reports from Islamic State social media accounts, Mr Bilardi died in a suicide bombing mission early on Thursday morning Australian time as part of a coordinated campaign of up to 21 suicide missions in the Iraqi town of Ramadi. Many of the attacks were carried out by foreign fighters.

The revelation of the extent of Mr Bilardi's preparation for terror attacks on Australian soil came in a 4400-word online manifesto which he apparently wrote in January as he waited in Iraq to undertake the mission.

Mr Bilardi called preparation for a Melbourne attack his "Plan B" after he initially failed to make it to Syria last year.

The plan involved "launching a string of bombings across Melbourne, targeting foreign consulates and political/military targets as well as grenade and knife attacks on shopping centres and cafes and culminating with myself detonating a belt of explosives amongst the kuffar [infidels]".

He says he had started "collecting materials for the explosives and prepared to start making the devices", but pulled back as he feared he might alert the authorities.

Victoria Police released a statement that said although bomb-making equipment was found, no explosive device was found at the house.

"Victoria Police first became aware of Jake Bilardi when he was reported as a missing person in late 2014," the statement said. "A subsequent search of his Craigieburn home uncovered chemicals that could be used to construct an explosive device. No actual explosive device was located by police."

Prime Minister Tony Abbott described Mr Bilardi's unconfirmed death as an "absolutely horrific situation".

"It's very, very important that we do everything we can to try to safeguard our young people against the lure of this shocking, alien and extreme ideology," he said.

The government will ask social media companies including Facebook and Twitter to take down more Islamic State propaganda to try and stop it from reaching impressionable young Australians at risk of being radicalised.

Mr Bilardi's family went to ground yesterday and refused to comment.

A former classmate of Mr Bilardi described his probable death as "tragic".

Jamie Kassan, who attended Craigieburn Secondary College said: "I never expected he would have done it. This will affect a lot of people, especially his family. It certainly hurts to know that someone you know has taken their life.

Mr Kassan said he believed the death of Mr Bilardi's mother in 2012 had played a role in him moving towards Islam, but not to extremism.

"After his mother died, Jake became quieter definitely, but I wouldn't say it sent him off the rails."

Junior school students at Craigieburn Secondary College were told at school assembly on Thursday that Mr Bilardi had been affected by bullying and the loss of his mother, said year 7 student Hope.

She said the students were urged to speak to teachers at the school if they have any problems at home or with other students.

Craigieburn resident Shirley Evans said she believed Jake and an older brother had lived at the Craigieburn home with their mother and stayed on after her death.

She said the house had become "derelict" after the mother was gone.

Ms Evans left some bread and milk for the older brother on his front step on Thursday morning, but they were still sitting there when she went to check on him in the afternoon.  "I just hope he's all right," she said.

"He's a lovely boy, he's a lovely man," she said.

"I just feel sorry for the whole lot of them. It's really sad to see a family in this sort of turmoil. I don't know what makes someone do this; it's just horrible, I'm just so sorry."