Speaking at the University of Melbourne on Monday, Keelty said terrorists groups are using technology to "spread their culture of fear, violence and intimidation" as well as "communicate and fund their activities and place themselves above traditional surveillance and policing capabilities".
Keelty said that because terrorists are using the Internet to plan their attacks, by the time investigators gather enough evidence to prove that that a crime is about to be committed, the risk becomes "unacceptably high".
"We know support is being offered to terrorist support networks in Australia, via telephone, on the Internet and through other electronic and physical means," said Keelty.
Keelty said that to combat the terrorist threat, which he explained is no longer restricted by geographic borders, Australia ought to lower its evidentiary standards by allowing courts to consider evidence obtained in circumstances that may "not strictly conform to domestic requirements".
"Many of the jurisdictions that we have to deal with, do not have the same evidentiary standards that we do here in Australia. I believe Australia's criminal justice system needs to allow courts to... admit evidence acquired in circumstances which may not strictly conform to domestic requirements," said Keelty.
Keelty cited dealings with the Indonesian National Police after the Bali bombings as an example.
"Indonesian laws enabling police to elicit information from suspects contributed to valuable evidence being secured at an early stage... Here in Australia, suspects have the right to remain silent when questioned by police about a serious offence," said Keelty.
However, Keelty denied that he was asking for Australia to disregard its justice system. Instead he said he would like to see more flexibility when dealing with evidence.
"I'd like to stress that I am not advocating disregard for the long-established legal requirements; only flexibility for a court to consider admission of evidence obtained under these sorts of restrictions," Keelty said.
Keelty said that since the AFP's inception 25 years ago, the organisation has had to change the way it goes about fighting crime by being more pro-active.
Ultimately, Keelty said that Australia's fight against attack will only be as successful as the tools it has available for investigating, information gathering and admitting evidence into Australian courts.
"As I've pointed out, the world today is very different to the days when some of the basic tenets of our legal and criminal justice systems were devised. The balance between security and freedoms is a delicate one and it is important not to abandon fundamental legal principles. Equally however, I believe we need to apply them with due consideration to 21st century conditions," said Keelty.