At least four people were wounded in the attack, including Bishop Mar Mari Emmanuel of the Assyrian Christ The Good Shepherd Church, when a man lunged at him with a knife during a service live-streamed on Monday.
The incident at the western Sydney suburb of Wakeley triggered clashes outside the church between police and an angry crowd of the bishop's followers who demanded the attacker be handed over to them.
Police arrested a male teenager at the scene on Monday and were forced to hold him at the church for his own safety as the crowd of worshippers gathered outside.
"We believe there are elements that are satisfied in terms of religious motivated extremism," New South Wales state Police Commissioner Karen Webb said during a press conference.
"After consideration of all the material, I declared that it was a terrorist incident."
Police said there was premeditation as the male attacker travelled to the church, far from his home, with a knife. But Webb said police at this early stage of the investigation believe the attacker was acting alone.
Christ the Good Shepherd Church in a statement called the attack an isolated incident and said it was awaiting the police findings into the motive of the attacker.
"The Church denounces retaliation of any kind," it said.
Authorities urged people not to take the law into their hands.
"You will be met by the full force of the law if there's any attempt for tit-for-tat violence in Sydney over the coming days," New South Wales state Premier Chris Minns told reporters.
Emergency crews said they attended to around 30 people after the clash outside the church, and seven were taken to hospitals with injuries. Several police were also hospitalised with injuries and 20 police vehicles were damaged, Webb said.
It was the second major stabbing attack in just three days in Australia's most populous city after six people were killed and 12 injured in a knife attack at a beachside mall in the Bondi area on Saturday.
'TIME TO UNITE'
Prime Minister Anthony Albanese said there was no place in Australia for violent extremism.
"We're a peace-loving nation. This is a time to unite, not divide, as a community, and as a country," he said during a media conference.
Bishop Emmanuel's live-streamed sermons attract a global audience and his video clips rack up hundreds of thousands of views online. He became well known for his hardline views during the pandemic when he described lockdowns as "mass slavery", media reported at the time. A sermon uploaded on YouTube last year showed the bishop criticising Islam.
Australia's spy chief said he would check people close to the attacker to rule out any further threats to the community.
"It is prudent that we do this to determine there's no threats or immediate threats to security. At this time, we're not seeing that," said Mike Burgess, director-general of security for the Australian Security Intelligence Organisation.
Asked by a reporter about a video circulating of the alleged attacker pinned to the ground, his face obscured, with a voice speaking in Arabic "if they didn't insult my prophet, I wouldn't have come here", Burgess said: "We're aware of those comments ... everything else is open lines of inquiry to understand why that individual got to where they did."
