Chaos in Melbourne: One dead, man with knife shot by police

Cordon is in place around the burned out vehicle

A handful of videos and images uploaded to social media appear to show the man attempting to stab police before he is shot.

Victoria Police on Friday confirmed they were treating the attack which occurred just before 4:30pm in Melbourne's busy Bourke Street as a terror-related incident.

Superintendent David Clayton said officers responded to reports of the vehicle fire but were confronted by the man "brandishing a knife and threatening them".

The officers were seen trying for at least a minute to detain the man peaceably as his attacks on them continued, before one officer shot him in the chest.

The suspect was was hospitalized in critical condition.

In December 2014, a 17-hour siege in which a gunman took 18 people hostage in a Sydney cafe ended with two hostages dead and the gunman killed by police.

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

Local ambulatory authorities said three people were assessed at the scene, according to News.com.au.

An unidentified witness then approached the alleged driver and was stabbed directly in the neck.

"From what we know of that individual we are treating this as a terrorism incident", Ashton told reporters, adding that the police counterterrorism command was working on the case, as well as homicide detectives.

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Police who were in the area arrived promptly on the scene after reports of the burning vehicle. He later died in hospital while under armed guard.

One witness said the driver got out of the auto and threw "something like a bomb" inside before it erupted into flames.

Police have urged anyone who witnessed the incident or had footage to contact them.

Two civilians became involved as well as the two officers, trying to stop the man from his attack.

One of the stabbing victims died at the scene while two are in hospital.

The area has since been cordoned off by the bomb squad.

Bystanders spotted a vehicle on fire on Bourke Street Mall, between Swanston and Russell Streets, outside the Target store.

Victorian Premier Daniel Andrews said the attack was "an evil, terrifying thing that's happened in our city".

The street was closed off and shops, including two large department stores, were evacuated.

Commissioner Ashton also says there is no suggestion that Shire Ali was inspired by James "Dimitrious" Gargasoulas, who is now on trial facing six charges of murder after allegedly mowing down pedestrians in January 2017.

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