It is believed the IS commander Tarek Khayat and his Australian relative Ahmed Merhi, were detained in Iraq earlier this year, but their arrests have been kept quiet due to diplomatic sensitivities surrounding the cases.
Minister for Defence Senator Marise Payne confirmed the individual, believed to be Merhi, is receiving consular assistance from Australia.
"I can confirm advice today that an Australian is currently detained in Iraq as a result of the ongoing conflict there," Minister Payne told a media conference in Sydney.
"Due to Privacy Act consideration and that to my knowledge Iraqi authorities have not publicly identified that person, I can’t confirm that identity at this point.
"I can advise that the Department of Foreign Affairs and Trade is providing consular assistance in accordance with the consular services charter."
Khayat, a Lebanese citizen, allegedly directed his Sydney-based brothers to blow up an Etihad flight from Sydney to Abu Dhabi on 15 July last year which had with 400 passengers and crew on board.
Minister Payne praised the work of Australia's national law enforcement, security and intelligence agencies in stopping the plot that the IS pair attempted to carry out.
"Operation Silves which disrupted connected terrorist plots in Sydney to bring down an airliner and to develop a chemical dispersal device was one of the most significant counter terrorism operations conducted in Australia. It was a testament to the work of national law enforcement and security agencies," the minister said.
It is currently unclear which court systems the pair will face and whether Australia would seek extradition of Merhi, with Minister Payne confirming at this stage no charges have been laid by Iraqi authorities.
"That [charges] will be a matter for the authorities in Iraq, as I said, as I understand it charges have not yet been laid," the minister said.
"We don't usually comment, and would not in this case, and disclose whether we have made or intend to make an extradition request to a foreign country until that person is arrested or brought before the court in a foreign country pursuant to that request."
While the minister would not confirm whether Merhi could face the death penalty in Iraq, she did reiterate Australia's position on the punishment.
"Charges have not yet been made but it remains the case that Australia opposes the death penalty."