Prime Minister Malcolm Turnbull has commissioned a review into so-called "call-out powers."
The review will look at whether to change the rules so army troops can be deployed more easily during a terrorist attack.
Attorney-General George Brandis says the existing rules make a quick response difficult.
"At the moment, the Defence Act provides for quite a complicated series of steps to be undertaken before the defence power is called out in aid of civilian authorities, and we're looking to see whether those powers can be streamlined so as to make the military more immediately able to be employed where it's important to do so."
The review was one of the New South Wales coroner's recommendations in his report on the 2014 Sydney siege.
The Attorney-General says those coordinating the response to a terrorist attack should have every tool at their disposal.
"Of course, we want to maintain the important distinction between the civilian power and the military power. You don't usually use the military power for law-enforcement or policing operations, but, when there's a terrorist episode, then, obviously, those fine legal distinctions are less important than getting the best possible outcome."
Justice Minister Michael Keenan says, whatever the review finds, the local police will always have a central role.
He has told the ABC cooperation between state and federal police and the military is the key.
"The idea of the Commonwealth just marching in without the cooperation of the local police force would be ludicrous. So, I mean, it's going to continue to work in a cooperative way."
The head of the Australian Federal Police, Andrew Colvin, has backed up that sentiment.
He says local state police will always be first on the scene but he is open to a review of what support the Commonwealth and the military can provide.
"There are well-worked protocols that say that first response is always going to be state- and territory-based police. The question is about what support the Commonwealth can provide."
The defence minister will lead the review into call-out powers, with a submission to the Cabinet expected shortly.
