1 dead in Melbourne stabbing; man attacked cops before being shot

A vehicle can be seen on fire in Bourke Street Melbourne

"We take this opportunity to thank those very courageous and dedicated members of Victoria Police who did all of us proud in their very quick response in very risky circumstances", Andrews said.

A man was shot by police after setting his vehicle on fire and stabbing three people and killing one in the city's central business district.

Two victims are still in hospital with non-life-threatening injuries.

Authorities are praising members of the public who helped police take down a man who launched a deadly terror attack in Melbourne.

Video has emerged of a man lunging at police with what appears to be a knife before being shot in Melbourne's Bourke St.

Cops say a Somalian immigrant, Mohamed Khalif - who goes by the name of Hassan Shire - crashed his truck on a busy street, hitting a pedestrian and then tried to set the truck on fire.

Two other men wounded in the attack are still being treated but are expected to make a recovery.

Khalif was known to police and federal intelligence authority ASIO.

Footage on social media shows a blue ute up in flames and a man dressed in a black tunic and white trousers menacing police with what appears to be a knife.

Prime Minister Scott Morrison said on Twitter that he condemned the "evil and cowardly attack" and praised the bravery of the police.

Australia has been on heightened alert from 2015 for attacks by home-grown militants returning from fighting in the Middle East.

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"The circumstances of how he and when he moved from having these radicalised views to carrying out this attack yesterday will be a key focus of the investigation", Mccartney added.

Police are confident the event was a terrorist attack, which Islamic State has claimed responsibility for.

It provided no evidence to back its claim.

Two officers got out of the auto and attempted to engage him. He has been arrested and taken to hospital in a critical condition.

A fire then started in the vehicle, according to Victoria Police Chief Commissioner Graham Ashton, who spoke during a news conference.

"It's the center of Melbourne, where a lot of the transportation changes over ... it's probably the busiest part of Melbourne and late on a Friday", said Meegan May who witnessed part incident from a nearby tram.

But Shire Ali's plan to create a fireball failed when the gas bottles did not explode. "You can't imagine someone deciding to do that".

The area has been cordoned off and people have been asked to avoid the area.

Shire Ali "sought to instill fear in our nation".

Melbourne is Australia's second-largest city and known for its thriving restaurant and cafe scene.

Bourke Street Mall, a pedestrian strip and shopping area popular with foreign tourists including Japanese, was previously the scene of vehicle rampage in 2017 that left six people dead.

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