The Government was also quick to point out that this overhaul is not in response to the 2014 Lindt Café terror attack, where NSW Police were criticised for their delay in action, but as part of a review into recent European attacks.
Speaking about the changes on Australian Broadcasting Corporation (ABC) radio on Monday, Justice Minister Michael Keenan said police would not be resigned "to the back seat" in terror operations, merely, the special forces would work alongside police to provide the best response to terror attacks.
Surrounded by special force soldiers in gas masks with machine guns, Prime Minister Malcolm Turnbull said police would remain the primary respondents to terrorist attacks.
Under the Defence Act, they have to apply for help before the military can normally be deployed within Australia.
Among a raft of changes, police will no longer have to wait until they have exhausted their capacity to call on the army during a terror attack, while special forces will be embedded in law enforcement agencies for better coordination, Malcolm Turnbull said.
Last week, Mr Turnbull spoke to police in London who responded to the London Bridge and Borough Market attacks, where three terrorists killed eight people and injured 50 in a few minutes.
The government will also strengthen the act to make it easier for Defence personnel to support the police response, such as clarifying their power to "stop and seize" suspects to prevent them leaving the scene of an incident.
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The process involved in a military "call out" to an incident will be streamlined, including abolishing a provision that limits the states from asking for military assistance until their capability has been exceeded. That provision will be abolished under the Turnbull government's changes, meaning states could request federal help even if they retained control of the situation.
"These measures will improve the nation's ability to respond to terrorism as well as improve the effectiveness of Defence's contribution to domestic counter-terrorism arrangements", Turnbull and Payne said.
"We want to make sure every asset we have that is created to keep Australians safe is brought to bear to do so when it is needed", Mr Turnbull said.
In practice, this means that it will be easier to deploy the Defence Forces in response to domestic terror incidents.
The Australian Defence Force (ADF) is to be given a bigger role and greater powers in combating terrorism, under changes announced by the government on Monday.
Former SAS commander-turned federal MP Andrew Hastie has previously said the Sydney siege response demonstrated state police were "not up to the task" of dealing with the unique nature of Islamist terrorism.
The changes, which need to pass Parliament, will be discussed at the next Council of Australian Governments meeting.