Sydney is on terror alert ahead of tonight's Mardi Gras festivities as record crowds flock to the 40th anniversary celebrations.   

Police are preparing for a possible attack by increasing security, blockades, and intelligence monitoring ahead of Saturday night's event. 

Oxford Street in Sydney and surrounds will be covered by more than 1,000 police.

There is 'significant terrorism overlay' due to the record crows expected and the nation's probable terrorism threat, Assistant police commissioner Tony Crandell told Nine News.  

'We think this will be a bumper crowd and probably the largest that we have ever policed,' he told reporters. 

'It is on that basis that there is a significant terrorism overlay, we understand the terrorism threat throughout the nation is probable and on that basis we will make sure we take every extra step.'

Operation Langdale, a highly visible police operation, will be in force to ensure public safety according to police.

Police officers on duty will be assisted by the Public Order and Riot Squad, Operations  Support Group, Mounted Unit, Dog Unit including drug detection dogs and traffic police.  

Assistant commissioner Crandwell reminded the public police will 'target' anyone taking or dealing illicit drugs or engaging in alcohol-related crime or anti-social behaviour.