Police say deadly Melbourne knife attack ‘act of terror’; IS claims responsibility

The dramatic scene was captured by Twitter user @chrismacheras

Police said officers "initially responded to a report of a vehicle on fire" in the city centre at 4:20 pm local time, but discovered at the scene that members of the public had been stabbed.

One person died at the scene and two others were being treated for their injuries.

The other two victims, Tasmanian retiree Rod Patterson, 58, and a 24-year-old security guard from Hampton Park, are recovering from surgery in hospital.

"I condemn the act of terrorism in Melbourne today that has tragically taken the life of a fellow Australian who has died as a result of this evil and cowardly attack", Prime Minister Scott Morrison said after he was briefed on the incident.

ISIS claimed responsibility for the knife attack through its media wing Amaq, the SITE Intelligence Group reported.

The attack occurred on Bourke Street in the central downtown area.

"We also 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 unsafe circumstances".

The officers retreated to the other side of the road as the bearded attacker, who had a shaved head and was dressed in a long brown tunic, pursued them.

One of the officers shot the man and he collapsed to the ground clutching his chest, the video showed.

Authorities say Australia's vigilance has helped foil at least a dozen plots, including a plan to attack Melbourne at Christmas in 2016, Shire Ali's brother's scheme and a plan to blow up a flight from Sydney using a bomb disguised as a mincer.

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Asked if the attacker had recently travelled to Syria he said: "That is something we might be able to talk more about tomorrow".

At the same press conference on Saturday morning commissioner Ashton said both members were "reasonably new".

Australian counter-terrorism investigators have searched two properties in suburban Melbourne the day after a man killed one person in a horrific terrorist attack in Bourke Street. The attacker has since died in hospital.

Police said that there was no known link to terrorism at this stage and that "we'll keep an open mind as to whether there's any link".

A witness at the scene told Broadsheet: "I just drove out of the city, cops were racing down Elizabeth Street".

"I'm absolutely terrified", he said.

Victoria Police are urging any witnesses to the incident to attend Melbourne West Police station to give a statement, or alternatively upload any images or videos from the incident to the Victoria Police facebook page.

Melbourne also would have likely had more tourists in town because of the Melbourne Cup Carnival, one of the city's most popular social events that draws visitors from around the country.

Melburnians had not been "cowered" and instead gone about their daily lives on Saturday, the premier added, noting there had been a record crowd at the Stakes Day races at Flemington.

The Friday incident took place blocks away from Flinders Street Railway Station, where a driver plowed into pedestrians a year ago, injuring 18.

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