Blake Nicolas Pender, 26, who lists his address as a mosque in Harris Park, was arrested at 1.50am on Wednesday at the intersection of Devonshire and Elizabeth streets in Surry Hills after he allegedly threatened police with a 20-centimetre kitchen knife.

When he was refused bail in Central Local Court on Wednesday, he yelled "Allahu Akbar" and "f--- you judge, you will be next".

Mr Pender was already on parole after serving half of a 12-month prison sentence for uploading a Facebook video about committing a terror attack and threatening to kill a Goulburn couple in a series of text messages sent in October 2015.

At the time, he was on parole for killing and torturing a dog, court records show.

He reportedly converted to Islam while in jail for assault in 2013 and made the Facebook video declaring he was a "mujahideen" preparing for "martyrdom".

On Wednesday, he appeared in court via audio-visual link with a tattoo beneath his right eye, a mullet and wearing a green prison-issued jumper.

He waved and winked while saying "hello babe" to females in the court room. He also pointed at the women and made a motion of slitting his throat and loading a gun.

Prosecutor Vanessa Robichaux said that Mr Pender had a parole meeting scheduled for Wednesday in which he was most likely going to have his parole revoked. Traces of methamphetamine, or ice, had shown up in his urine samples in recent weeks and he had failed to provide a home address for his de facto partner on several occasions.

When he was arrested by police on Wednesday morning, he allegedly said: "If I still had the knife I would have killed you all. The proudest thing a man can do is behead a cop."

When he was interviewed by a justice health clinical nurse later that day, he allegedly expressed desires to kill police and military officers.

"He said that, 'I want to blow myself up and kill the police. It's my life ambition'," Sergeant Robichaux told the court.

Mr Pender's Legal Aid solicitor Mary Underwood said her client wanted to be bailed so he could take his sick two-year-old daughter to hospital.

However, Magistrate Joanne Koegh denied bail, saying he posed an unacceptable risk to community safety. She said he had breached his parole at least once before by committing stalking offences while on parole for torturing or beating animals.

"He has significant violence in his background," she said.

"His behaviour today in court is unusual [particularly] his gesturing or purporting to slit his throat and point a gun."

Mr Pender interrupted to yell words in Arabic and said, "you're dead". Throughout the proceedings, he held his index finger up in a religious statement that has been hijacked by Islamic State supporters.

Mr Pender will return to court in two weeks on charges of intimidating a police officer, armed with intent to commit an indictable offence, assaulting an officer in the execution of duty, resisting police, custody of a knife in a public place and larceny.

The Fixated Persons Unit, one of NSW Police Commissioner Mick Fuller's first initiatives, was launched in April and has assessed up to 50 Australians with mental illness or concerning behaviour.

It is intended to identify and work with people who may not warrant investigation by counter-terrorism police but have shown concerning behaviour and could end up committing lone-wolf attacks.

Mr Fuller said it could deal with people such as Lindt Cafe gunman Man Haron Monis, who had a history of odd and extremist behaviour but was not considered an active counter-terrorism investigation when he stormed the cafe in December 2014 and took 18 people hostage.

The unit, staffed by 17 officers from the disbanded Armed Robbery Unit, formulate intervention plans for fixated individuals that may include mental health support or family support.

It was announced just prior to the release of the findings from the Lindt Cafe siege inquest, which was critical of poor information sharing about Monis and several missed opportunities to take him off the streets.