A MAN has been shot by police after allegedly stabbing three people, killing one of them, and attacking officers with a knife following a auto explosion in Melbourne's CBD.
Horror footage shows a vehicle on fire.
Three people have been stabbed, unfortunately one of them is deceased at the scene.
"We don't believe there is an ongoing threat at this stage, but certainly we are treating it as a terrorism incident", Ashton said.
Bourke Street is now blocked between Swanston and Russell streets, and people are being advised to avoid the area. It said the man was "one of Daesh's fighters" and had responded to calls for attacks in countries that are part of the global coalition fighting the militants in Syria and Iraq.
The suspect is then shot by police and falls to the ground.
He has been taken to hospital in a critical condition.
Moments after a ute went up in flames at about 4.20pm on Friday, police shot the man as he swiped at officers with a knife.
Police work at the crime scene following a stabbing incident in Melbourne on November 9, 2018.
Police later said the vehicle from which the slain suspect, a Somali national, had emerged, contained gas cylinders and was on fire when they arrived.
Mr Hair said two civilians became involved as well as two police, trying to stop the man from his attack.
The two survivors were taken to hospital - one in a suspected critical condition. But after reaching the spot they witnessed that several people were stabbed and critically injured. One of the victims also died and the two others were admitted to hospital.
Appearing with police, Premier Daniel Andrews said "this is an evil, terrifying thing that's happened in our city and state today".
"Then I heard a loud bang and someone said they could see someone doing chest compressions on someone as an ambulance started coming up the street as well".
The Islamic State claimed responsibility for the attack and authorities say they are investigating it as an act of terrorism. He sprung back into action and charged back towards the attacker, shoving the trolley back in his direction as police opened fire.
This image made from video shows police on street corner after a shooting in Melbourne, Australia.