“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 reporters.

“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”.

“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 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.

An Australia-based spokesman for Home Affairs Minister Jason Clare said “we are aware of security risks” and are working with Indonesia to ensure “all necessary precautions are taken”.

Friends and families of victims have also 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.

Indonesia’s deadliest terror attack plunged the nation into the war on militancy and battered Bali’s tourist-reliant economy.

The attacks in 2002, and a 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 praise 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 Jemaah Islamiyah members have been killed or put behind bars.

Bali 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.

But despite the apparent recovery, the 2002 atrocity is seared into the memory of Indonesians – 38 of whom perished in the blasts – and on Wednesday’s terror threat quickly rekindled dark memories of the previous attacks.

“Bali used to be safe but you never know anymore,” said hotel developer Boy Harlin, whose friend was badly burned in the 2002 bombings.

“I’m in the hospitality industry and all my buyers ran away after the attacks, so another attack is the last thing I want to happen.”

For many Australians the bombings were a direct attack on their country. Gillard recently described the event as “a moment of horror that had a profound effect on Australia as a nation”.

“This memorial is just another step in the journey, because it’s something that will never go away,” said Keith Pearce, 65, who flew from Perth with around 30 members of his Australian Rules football club which lost seven young men.

“Each year when we have an anniversary, you look into the boys’ eyes and you can see it’s still very raw for them.”

There are also fears that although crippled, Jemaah Islamiyah is far from defeated, with old names cropping up in new terror cells that aspire to impose an Islamic caliphate across Southeast Asia by violent means.

“The current threat in Indonesia is at a different scale from what it was a decade ago,” International Crisis Group Southeast Asia project director Jim Della-Giacoma said.

“But recent police raids on suspected terrorists show that the threat continues and that there’s still a lot of radical thought and ideology.”