Melbourne terror attack leaves one dead, two injured

A man set fire to his vehicle in central Melbourne during rush hour on Friday before stabbing one person to death and injuring two others in what police said was a terrorist attack.

"We are now treating this as a terrorism event," said Graham Ashton, police chief commissioner for Victoria state. He said the attacker was someone known to police through family connections.

The man, who was not named, was said to be a resident of Melbourne's north-western suburbs who had come to Australia from Somalia in or around the 1990s, when the country was ravaged by a civil war.

The man drove a pickup truck loaded with gas bottles into the bustling city centre, set the vehicle on fire and then started attacking passers-by with a knife, police said.

He stabbed three people, one of whom died at the scene, before being shot by police. He died in hospital

Dramatic footage showed two police officers trying to arrest the man as he lunges and slashes wildly in broad daylight on Bourke Street with his vehicle burning in the background.

One police officer found room to shoot the suspect and the man dropped to the floor clutching his chest.

At least two members of the public stepped in to help police. One man was armed with a cafe chair while another - swiftly dubbed an "Aussie hero" on social media - repeatedly tried to ram the suspect with an empty metal shopping cart.

Australia's counter-terrorism command has taken a lead role in the investigation and police set up a three-block-wide exclusion zone as forensic investigators combed through the scene.

Officers said they "are not looking for anyone further at this early stage" and there was no immediate evidence of an ongoing threat related to the attack.

Victoria Police said officers "initially responded to a report of a car on fire" in the city centre at around 4:20pm local time, as people began to leave work for the weekend.

Earlier, paramedics said they assessed three people at the scene. One had with a neck injury.

"They are in a suspected critical condition," paramedics said. "A second person has been taken to hospital with a head injury. Condition not yet known. A third person has also been taken to hospital."

Melbourne, Australia's second largest city, is a cosmopolitan metropolis of almost five million people famed for its cafes, bars, restaurants and high standard of living.

Friday's attack is a double blow for the city as it coincides with an ongoing murder trial of 28-year-old James Gargasoulas, whose car ploughed into crowds in the same area in 2017, killing six people.

Victoris Premier Daniel Andrews described Friday's attack as "evil" but said the city would not be bowed.