Superintendent David Clayton said officers responded to reports of the auto fire but were confronted by the man "brandishing a knife and threatening them".
Witness footage showed police struggling for at least a minute to corral the towering man - who was wearing a dark tunic - as he lunged, slashed and stabbed wildly at two officers.
One person has been stabbed to death on a central Melbourne street where a knife-wielding man was left in a critical condition after being shot by police.
"People who'd seen it had told me they heard shots being fired, and everyone heard an explosion that was like the petrol exploding".
Asked about what the attacker had been planning, Ashton referred to the gas cylinders in the vehicle and said: "You could make certain assumptions from that".
Three people were reportedly been taken to hospital after the incident on Bourke St. The police have also ruled out terrorism links.
"At the same time passers-by were calling out that members of the public had been stabbed", he added.
At a press conference, a police spokesperson said there are no links to terrorism at this stage.
Mr Ashton said when a marked police auto arrived at the scene, the attacker reached in and punched an officer through the window before pulling out the knife and engaging the officers.
As the attacker pursues police across the street and they back away, the man recovers his trolley and follows.
Forensic investigators combed through the scene late Friday, where the dead victim's body lay covered in a white plastic sheet.
Video taken by witnesses shows a vehicle on fire in the area and bystanders using a shopping trolley and chair to confront the attacker.
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.
Victoria Police is treating a stabbing attack in Bourke Street, Melbourne, that killed one man and injured two as a terrorist attack.
Police warned people to avoid the area, although the suspect is believed to have been detained.
Melbourne was also the scene of two fatal car-ramming incidents a year ago, but neither was linked by police to terrorism.
Victoria state Premier Daniel Andrews says the attack was "an evil and terrifying thing that has happened in our city and state today".
More than 100 police have swarmed on the area.