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.
Defence officials will also provide specialised training to police forces as part of the measures.
Although police were absolved of blame during a 2014 Sydney cafe seige, in which two hostages and the gunman were killed, an inquest found authorities had underestimated the threat of the hostage taker and recommended a review of several procedures.
"Our enemies are agile and innovative. We have to stay ahead of them," Turnbull told reporters in Sydney.
"We have to ensure that every resource we have -- legislative, military, police, intelligence, security -- is always at the highest standard and able to be brought to bear to keep Australians safe."
Turnbull recently visited the scene of the June 3 terror attack on London Bridge and Borough market in Britain.
He noted the speed with which eight people -- including two Australians -- were killed in the van and knife rampage, as well as how quickly emergency services responded.
"It is vitally important that front line police have their skills improved to be able -- and the training to be able -- to deal with these incidents on the spot," he said.
Police will remain the first responders but the changes will allow them to work more closely with the army, he said.
"What I am doing is taking a lot of the red tape and the gum out of the works to enable the cooperation between the police and the ADF (Australian Defence Forces) and particularly the specialists ... so they can work together more seamlessly," he added.