The bomb blast that ripped apart Bali's entertainment precinct late on Saturday night has killed 187 people and injured 309, stamping terrorism's bloody fingerprint on Australia's door.

The devastating attack has also raised serious questions about the stability of Indonesia, Australia's nearest and most powerful neighbour.

The Prime Minister, John Howard, said: "There are many Australians unaccounted for many. We must, therefore, prepare ourselves as a nation for the possibility of a significant number of Australian deaths."

Scores of Australians who were holidaying in the Indonesian tourism capital are believed to be among the dead and injured. Sixty-three of those listed as injured were said to be Australians, although large numbers of people are still missing as friends and families search hospitals and morgues.

Indonesian authorities have confirmed that the blast, which destroyed two nightclubs on Kuta's main street, the Sari Club and Paddy's Irish Pub, was caused by a car bomb. Witnesses reported two explosions in quick succession about 11.30pm, the second bigger than the first.

The clubs were filled with revellers, many on end-of-season football trips from Australia.

Mr Howard labelled the attack a "wicked and cowardly" act.

"The indiscriminate, brutal and despicable way in which lives have been taken away on this occasion by an act of barbarity will, I know, deeply shock all Australians.

"I can only say again that the war against terrorism must go on with unrelenting vigour and with an unconditional commitment."

Mr Howard called an urgent meeting of cabinet's National Security Committee for this morning to review Australia's security arrangements.

The US ambassador to Indonesia, Ralph Boyce, said early indications pointed to the al-Qaeda terror network. "We are very much considering it a despicable act of terrorism," Mr Boyce said on CNN.

"There have been problems in Indonesia of late involving signs that al-Qaeda may have been involved in activities here."

The US President, George Bush, condemned what he called a "heinous" act "designed to create terror and chaos".

"I offer our sympathy to our friends, the people of Indonesia, for this terrible tragedy. Our prayers are also with our friends and allies, the people of Australia, who are suffering a grievous personal and national loss," he said.

Shortly after the Kuta blast, another smaller bomb exploded near a United States consular office in the Balinese capital of Denpasar. There are also suspicions that a blast earlier in the day at the Philippines embassy in Manado, on Sulawesi island, may be connected.

Australian Federal Police and ASIO investigative, forensic and intelligence agents flew to Bali last night to join the investigation.

An RAAF C130 Hercules aircraft flew surgeons and specialist nurses to Bali yesterday amid concerns that the island's rudimentary hospital services were being overwhelmed. The most seriously hurt of the Australian casualties were being airlifted back to Australia. The first of at least three planes, carrying 37 injured people, left Bali for Darwin late last night.

The biggest terrorist attack ever involving Australians comes after months of US criticism of Indonesia's efforts against terrorist groups operating within its borders.

Indonesia's Security Minister, Susilo Bambang Yudhoyono, yesterday issued his Government's first official admission that terrorists were operating within its borders, describing the bombing "as a warning to all of us that terrorism is in our backyard".

But he, President Megawati Soekarnoputri, who was in Bali last night, and the police declined to say who they believed was responsible.

A senior military source said indications pointed to a foreign group. "The message is not for Indonesians; it's probably for the Australians given the fact many of the victims are Australian," he said. "People understand Australia and Britain support the US plan to attack Iraq."