Australia still has about 850 troops serving in Iraq

But Alexander Downer said his country was "absolutely determined" not to give in to what he called terrorist threats.

The group, calling itself the Islamic Tawhid group and the European branch of al-Qaeda, posted its statement on an Islamic website.

It threatened Australia and Italy with attacks with "columns of rigged cars".

"It is very important we send a strong message that we will not be threatened by terrorist groups," Mr Downer told Australian Nine Network television.

"Terrorist groups will not determine the policy of the Australian government or the Australian people," he added.

'Terrorists encouraged'

Nine Network quoted the group as saying that if Australian troops are not withdrawn from Iraq "we will shake the ground beneath your feet as we did in Indonesia, and columns of rigged cars will not stop".

COALITION TROOPS IN IRAQ Top contributors: US - 112,000 UK - 8,300 Italy - 2,800 Poland - 2,350 Ukraine - 1,550 Netherlands - 1,300 Australia - 850 Romania - 700 South Korea - 700 Japan - 500 Where are the troops?

The threat cited the October 2002 Bali bombing in Indonesia, which killed 202 people, including many Australians.

It called on Australia and Italy for their own safety and security to follow the example of Spain and the Philippines, both of whom pulled out their troops this year.

Mr Downer told Nine Network their withdrawal had encouraged terrorists to continue threats.

On Wednesday, the group threatened Bulgaria and Poland with attacks if they did not leave Iraq.

Australia has about 850 troops in and around Iraq. Australian Prime Minister John Howard has been a strong supporter of the US-led "war on terror".