Former ASIO head David Irvine says jihadists will likely soon try to launch destructive online attacks, while rising tensions in Asia will also increasingly be fought out in cyberspace.
Mr Irvine made the remarks while unveiling a report by the Australian Strategic Policy Institute, which found Australia had slipped from second to fifth place among countries in the Asia-Pacific region ranked by their cyber policies and practices.
"While terrorist organisations have not yet exhibited sophisticated cyber attack capability, we must anticipate, given the sophistication they demonstrated in using the internet for propaganda and other reasons, that they could well seek to develop destructive attack capabilities in the near term," Mr Irvine said.
He added: "We must anticipate that political tensions throughout the region play out online as cyberspace increasingly becomes another medium for international competition and national interests."
Mr Irvine, who stepped down as director-general of ASIO just over a year ago, said the threats posed by state-organised cyber attacks went beyond government information to include "personal and commercial" data.
The remarks follow comments last week to Fairfax Media from a cyber security expert that data theft and cybercrime is already a major source of funding for the Islamic State terror group.
Meanwhile the ASPI report, Cyber Maturity in the Asia-Pacific Region, found that the US remained the region's most advanced nation but Australia had slipped back to fifth place because of "rapid regional advancements" led by Japan, South Korea and Singapore.
Cyber "maturity" was gauged by performance in governance structures, financial cybercrime enforcement, military application, digital economy and business, and social engagement.
China, which has elevated cyber policy to its highest levels of government and made a strong push into digital commerce, could leap from its current eighth place into the top five within the next year or two, and even challenge the US by 2020.
Echoing Mr Irvine's concern about regional rivalries, ASPI's Tobias Feakin said the "geopolitical tensions of the region are being replicated online".
Dr Feakin, who heads ASPI's International Cyber Policy Centre, said Japan, South Korea and Singapore had made "quite remarkable" progress in just a year, driven largely by fear of cyber attacks by neighbours.
Australia performed well in fighting cybercrime and co-operating with other countries. But it was unclear what the military's role is in cyber security, and the government needed to talk more to smaller and medium-sized firms rather than just big multinationals, who are generally already doing well in preventing cyber threats.
And while the Australian Cyber Security Centre was opened a year ago, based at ASIO's Canberra headquarters, it remained to be seen what the anticipated federal cyber security review would yield. The review is overdue, having been expected in June.
He said Prime Minister Malcolm Turnbull was one of the "most tech-savvy" leaders in the world, which "bodes well" for improvements.
The report also looked at opportunities presented by online commerce, particularly fuelled by rapid economic growth rates in Asia.
"Increasingly, a larger and larger slice of this is the digital economy. If countries don't set up the right basis to take advantage, they may see themselves slipping quickly and badly," Dr Feakin said.
The digital economy already makes up five per cent of Australia's overall economy, more than agriculture or retail, the report found.