Adullah Elmir appeared in the video, posted Monday, under the pseudonym Abu Khaled from Australia, Sydney Morning Herald reported.
He was seen wearing military gear and holding a rifle, and was accompanied by fellow jihadis.
Elmir, whho ran away from his Bankstown home in Sydney, accompanied by a 16-year-old friend known as Feiz, threatened Tony Abbott and vowed to fight until the militant group would conquer the West.
Speaking for less than two minutes, Elmir baited the US, Britain and 'especially Australia' to throw everything they have militarily against the IS militants, who have seized large tracts of territory across Syria and Iraq.
He then vowed the group will keep fighting until it would raise the black flag of the IS above the White House and beheaded tyrants - apparently referring to Western leaders including Prime Minister Abbott.
It is the first time the IS has specifically mentioned the Prime Minister in one of its major propaganda videos and is also the most prominent role so far given to an Australian jihadi.
"This message I deliver to you, the people of America. I deliver this message to you, the people of Britain, and I deliver this message to you, especially, the people of Australia," he said.
"We will not put down our weapons until we reach your lands, until we take the head of every tyrant and until the black flag is flying high in every single land, until we put the black flag on top of Buckingham Palace, until we put the black flag on top of the White House."
Elmir added: "We will not stop and we will keep on fighting. And we will fight you and we will defeat you".