Federal Justice Minister Michael Keenan has slammed the "truly appalling" use by Khaled Sharrouf of one his young sons in the latest propaganda video to emanate from the Australian-born Islamic State fighter.

The video, which reportedly shows Sharrouf's youngest son, Humzeh, being quizzed off-camera by his father about how to kill non-Muslims and Australians, recently surfaced online and is now the subject of an intense investigation by the NSW Joint Counter Terrorism Team.

News Corp reported on Sunday that the 8-year-old child brandishes a Glock pistol and machine gun in the video, demonstrating at his father's request how he would carry out each killing.

Mr Keenan, who is the Minister Assisting the Prime Minister for Counter Terrorism, told Fairfax Media on Sunday that it was "incomprehensible that any parent would involve their child in these atrocities."

"The Australian Government condemns this truly appalling act of using a child to espouse ISIL's terrorist messaging."

 He said there was a risk the video could "appeal to the small cohort of Australia-based Islamist extremists as it reinforces their existing ideology".

"However a single piece of propaganda in isolation is unlikely to be the catalyst for an onshore attack."

Sharrouf, the most notorious of the Australian radicals to join the Islamic State fight in Syria and Iraq, was originally thought to have died in a drone strike in Mosul in 2015, but was later found to be making intercepted phone calls to an underworld figure in Sydney.

He has five children, all Australian citizens, who have been living in the war-torn region since 2013, when their mother Tara Nettleton took them to Turkey and then Syria to join Sharrouf.

Tara Nettleton died from an untreated illness while still in the Middle East in 2015, leaving the children in custodial limbo. Their grandmother, Karen Nettleton, has sworn to try and secure their return to Australia but a trip she made to Turkey a year ago in pursuit of that goal was thwarted after media exposure.

Sharrouf's oldest daughter Zaynab, still only in her mid-teens, has since given birth to a child of her own after being married while in Syria to Sharrouf's IS fellow traveller and comrade-in-arms, former Australian Mohamed Elomar, who was recently killed in battle.

Sharrouf was stripped of his citizenship earlier this year under new laws which allow the government to remove Australian citizenship status from dual nationals engaged in terror-related activities.

"The Government's citizenship loss legislation is a strong deterrent for those who may seek to involve themselves in terrorist conduct either in Australia or offshore. This should provide a warning for others seeking to involve themselves in fighting for terrorist organisations offshore" Mr Keenan said.

Federal Resources minister Matt Canavan told Sky TV on Sunday that he had sympathy for Sharrouf's young son.

"Its' not his fault that his father is an evil megalomaniac, seeking to abuse his own children" he said.

Sharrouf used another of his sons in propaganda posts on social media in 2014, showing the child holding a severed head said to be that of a Syrian soldier.