The domestic spy agency's Director-General David Irvine said the threat had been rising over the past year, particularly in recent months, mainly due to Australians joining the Islamic State movement to fight in Syria and Iraq.
"I want to stress that this does not mean that a terror attack is imminent," Abbott told reporters. "We have no specific intelligence of particular plots.
"What we do have is intelligence that there are people with the intent and the capability to mount attacks."
It is the first time that the threat level has been elevated above medium since the scale was introduced in 2003.
In the aftermath of the Sept. 11, 2001, al-Qaida attacks on the United States, Australia's threat level had been medium on a three-tier scale.
Abbott described the new setting as "broadly comparable" to the setting in Britain where the terrorism threat level was raised last month to the second-highest risk level on a five-tier scale.
"Normal life in Australia can and must go on, but we need to be aware that there are people who wish to do us harm and are preparing to do us harm," Abbott said.
Nicholas O'Brien, head of Charles Sturt University's Counterterrorism School, said the shift from saying a terror attack "could happen" to "is likely" must be based on a significant threat.
It was more remarkable because Irvine made the decision in his final week before he retires after five years at ASIO's helm, O'Brien said.
"If there were any wriggle room, you'd leave a decision like that to your successor," O'Brien said.
Australia estimates at least 60 Australian citizens were fighting for the Islamic State group and another al-Qaida offshoot Jabhat al-Nursa, also known as the Nusra Front, in Iraq and Syria. Another 15 Australian fighters had been killed, including two young suicide bombers.
Another 100 Australians were actively supporting extremist groups from within Australia, recruiting fighters and grooming suicide bomber candidates as well as providing funds and equipment, the government said.
Abbott said more than 20 Australian fighters had already returned from Middle Eastern battlefields.
The suspected brother of a suicide bomber killed in Syria and another alleged jihadist appeared in an Australian court on Thursday charged with funding and recruiting for al-Qaida offshoot terrorists in the Middle East.
The government warns that the Islamic State movement poses an unprecedented domestic terrorism threat. Australia will introduce tough counterterrorism laws in Parliament this month and announced 630 million Australian dollars ($590 million) in new spending on intelligence, law enforcement and border protection agencies over the next four years to enhance security, including a roll out of biometric screening at airports.
