Australia's most-wanted terrorist has been killed in a US airstrike on Islamic State in northern Iraq, the government confirmed Thursday.

Attorney General George Brandis said Neil Prakash, 24, was among a group of Islamic State terrorists bombed on Friday in the airstrike on an Islamic State stronghold in Mosul.

"We should be gladdened by this news because Prakash was the most dangerous Australian we knew of {fighting for Islamic State]," Brandis said on broadcaster ABC radio Thursday.

Brandis said Prakash was a “very important high value target” who had been a key recruiter for Islamic State who was actively involved in encouraging terrorist attacks in Australia and the United States.

"He was the principal Australian reaching back from the Middle East ... in particular to the terrorist networks in both Melbourne and Sydney. He was the person of greatest concern to us."

Prakash appeared in propaganda videos and magazines and recruited Australians, including children, to commit acts of terrorism.

Prakash, of Fijian and Cambodian descent, changed his name to Abu Khaled al-Cambodi after he left Melbourne for Syria in 2013 to join Islamic State.

Brandis also said Shadi Jabar Khalil Mohammad, sister of the 15-year-old boy who shot and killed a police worker in Sydney last October, had been killed in a separate airstrike on April 22.

She left Sydney for Syria just a day before her brother, Farhad Jabar, attacked police headquarters in western Sydney, shooting dead accountant Curtis Cheng before he was killed in a shootout with police.

Shadi Jabar, aged in her 20s, was killed in a US airstrike near the Syrian city of Al Bab along with her Somali husband, Abu Saad al-Sudani. She was believed to have recruited her brother and also recruited for Islamic State from Syria.

The government has said around 110 Australians are fighting with Islamic State in the Middle East.

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