Two Sydney friends who were arrested just hours before they allegedly planned to carry out a terrorist attack have entered guilty pleas in court.

Less than a week before they were due to face trial, flatmates Omar Al-Kutobi, 25, and Mohammad Kiad, 26 pleaded guilty in the NSW Supreme Court on Wednesday to one count each of "do act in preparation/planning for terrorist act" .

The pair were arrested after counter-terrorism police raided the granny flat they shared at the back of a property in Fairfield in Sydney's west in February last year.

Police allegedly seized a hunting knife, machete, home-made Islamic State flag and a video filmed by Kiad showing Al-Kutobi holding knives and vowing to strike the kidneys and necks of white people "today".

The pair, who had worked together as removalists, were allegedly planning an Islamic State-inspired terrorist attack from the granny flat as revenge for incidents overseas.

"We believe the men were potentially going to harm somebody, maybe even kill somebody, potentially using [the knife]," NSW Deputy Police Commissioner Catherine Burn said at the time.

"We will be alleging that the two men were well advanced in their preparations."

Police have said they knew next to nothing about the pair, and the raid was sparked after one of the men allegedly bought a hunting knife from a military and camping store in Smithfield.

Then prime minister Tony Abbott described the contents of the video as "monstrous extremism", attracting criticism for potentially prejudicing any future trial.

Although the men have pleaded guilty to the charge, there is expected to be a challenge to some of the police allegations, including that there was an intention to kill someone.

Al-Kutobi, who arrived in Australia as a refugee and became a citizen in 2013, was studying nursing in western Sydney. His family has said he tried to join the Australian Army, but was rejected.

Kiad moved to Australia from Kuwait in 2012, but could not transfer his nursing qualifications and spent time working as a security guard.

A hearing related to the alleged facts is due to take place in September.

The pair's trial had been listed to start in the Supreme Court on Monday.