The secretive agency said it had struggled to meet the demands of confronting two major threats, terrorism that "shows no sign of diminishing" and an "unprecedented" level of hostile foreign interference that was "expanding in its scope and complexity".

"Foreign intelligence services sought access to privileged and/or classified information on Australia's alliances and partnerships, our position on international diplomatic, economic and military issues, our energy and mineral resources, and our innovations in science and technology," director-general Duncan Lewis wrote in ASIO's annual report.

On top of these operations, the spy agency "identified foreign powers clandestinely seeking to shape the opinions of members of the Australian public, media organisations and government officials in order to advance their country's own political objectives".

"Ethnic and religious communities in Australia were also the subject of covert influence operations designed to diminish their criticism of foreign governments," ASIO reported.

"These activities - undertaken covertly to obscure the role of foreign government - represent a threat to our sovereignty, the integrity of our national institutions and the exercise of our citizens' rights."

Much of the interference, according to the report, is an "insidious threat" and the significant consequences may not be immediately felt. The threat of state-sponsored cyber-attacks is also expected to increase due to their affordability and "plausible deniability".

ASIO's comments follow accusations that one of Australia's biggest political donors engaged in clandestine activities to "advance the interests of the People's Republic of China" and concerns that Chinese students at universities are agitating against free speech and political expression.

Earlier this year, a joint Fairfax Media-Four Corners investigation exposed ASIO's concerns about foreign interference, including the targeting of Chinese Australians who are critical of Beijing and influence on university campuses and in Chinese language media.

Attorney-General George Brandis is planning a significant shake-up of the laws governing influence in Australian politics amid the fears centred around the Chinese Communist Party.

In recent days, Foreign Minister Julie Bishop and Frances Adamson, head of the Department of Foreign Affairs and Trade, have called for respect of freedom of speech at universities and "secure and resilient" campuses in the face of "untoward influence and interference".

ASIO's report suggested some government departments or agencies felt that "more resources should be devoted...to our broader counter-espionage and foreign interference efforts".

The agency also singled out the rising popularity of encrypted communications, saying its use "by security intelligence targets remains an area of particular concern".

"Rapid technological development and the increasing use of encrypted communications devices by individuals planning attacks impacted on intelligence and law enforcement agencies' efforts to detect their activities," the report said.

Mr Lewis also expressed concern about the "re-emerging" terror threat in south-east Asia, pointing to the ongoing influence of the so-called Islamic State, the significant number of south-east Asian foreign fighters involved in the Middle East, the release from prison of convicted terrorists "who remain capable and influential" and the existence of "ungoverned spaces...which can be used as safe havens for planning and logistic support by terrorists" .

The Australian government has been assisting the Philippines in a domestic conflict with Islamic State-aligned militants, who have laid siege to the southern city of Marawi.

ASIO warned that "any defeat of ISIL will not be absolute", predicting that the threat - including from returning foreign fighters - would endure for a long time.