Indonesia declared its highest security alert Wednesday, saying there was "credible information" of a threat against a ceremony Friday marking the 10th anniversary of the Bali bombings.
Australian Prime Minister Julia Gillard will attend Friday's service in Bali for the 202 people including 164 foreigners killed in the suicide attacks against two packed nightspots on October 12, 2002.
"Based on credible information, the terrorists have planned to target the Bali bombing commemoration event with a terror attack," Bali deputy police chief I Ketut Untung Yoga Ana told AFP.
"Security at all entry points to Bali, such as airports and seaports will be intensified," he said, adding that security was at "the highest level".
Buildings and cars burn after bomb blasts in the tourist are of Kuta, Bali in October 2002. Indonesia will commemorate the 10th anniversary of the Bali bombings that killed 202 people, including 88 Australians, on October 12, 2012.
"We are taking extraordinary security measures following this threat," he said, after earlier announcing that 1,000 security personnel including snipers and intelligence agents had been deployed.
Gillard is due to give an address to commemorate the 88 Australians who were among the victims of the strike against the Sari Club and Paddy's Bar in the tourist island's nightlife strip of Kuta.
Friends and families of victims have poured into Bali for Friday's service, some meeting at the "ground zero" site of the attacks or laying flowers at an adjacent stone memorial, inscribed with the names of the dead.
The nation's deadliest terror attack, carried out by the Al-Qaeda-linked group Jemaah Islamiyah (JI), plunged Indonesia into the war on militancy and battered Bali's tourist-reliant economy.
Graphic map of Indonesia locating the nightclub bombings in Bali that killed 164 foreigners and 38 Indonesians on October 12, 2002. Friday marks the 10th anniversary of the bombings.
The attacks on the heart of the nightlife strip, and another suicide blast in 2005 that killed 20 as they dined at the beachfront Jimbaran district, devastated the island's tourism industry.
A decade on, Bali's fortunes have recovered and Indonesia has won plaudits for a crackdown on militants that has left all the leading Bali perpetrators either executed, killed by police or jailed.
The nation has not seen a major attack since 2009 when blasts at two five-star hotels in Jakarta killed nine, and more than 700 JI members have been killed or put behind bars.
Bali is is on track to lure a record million Australian arrivals this year as tourists flock back to the Hindu-majority island which is renowned for its pristine beaches, wild nightlife and welcoming locals.
Bali bombing survivor, Australian Phil Britten, looks at the names of dead victims at a memorial monument to the victims of the attack in Kuta on the Indonesian resort island of Bali on October 9, 2012. The attacks on the heart of the nightlife strip, and another suicide blast in 2005 that killed 20 as they dined at the beachfront Jimbaran district, devastated the island's tourism industry.
But despite the apparent recovery, the 2002 atrocity is seared into the memory of Indonesians -- of whom 38 perished in the blasts -- and the worst affected countries.
"My friends and I still feel traumatised," said 21-year-old Komang Gunawan, whose friend Sukaryio, who like many Indonesians goes by one name, was killed in the attacks.
"I wondered why anyone would want to target Bali. We are peaceful here. I'll never understand it."
Many in Australia saw the bombings as an attack on their country. Gillard recently described the attacks as "a moment of horror that had a profound effect on Australia as a nation".