The police are handling an attack on Bourke Street in Melbourne, where one person was fatally stabbed and two others injured as a terrorist incident.

The attacker was shot dead by police when Friday's frightening scene took place in Melbourne's neighborhood. He died later that night at the hospital.

Witnesses said they heard a loud explosion and saw a car fire in front of Target on Bourke Street, between Swanston and Russell Streets, at 4:20 pm.

Chief Commissioner Graham Ashton said the attacker was known to the police and intelligence agencies.

"What we know so far about the individual … from what we know, we treat this as a terrorist attack," he said.

"We believe that we have confirmed the identity [and] There are ongoing investigations into the fight against terrorism. I can not disclose the identity of this person. "

"He's known to the police, mainly for relatives who are of interest to him. He's someone known to the Victoria Police and the federal intelligence agencies. "

Ashton said there was no ongoing threat and would not provide any further details on the identity and motive of the attacker.

Video material circulating on social media showed a man approaching the police after the vehicle exploded and tried to stab them, and then fell back after a shot. One of the police had pulled the gun.

The confrontation was filmed by several spectators on site from several points of view.

Ashton denied, however, that the attacker had shouted "Allahu Ackbar," as some in the social media report.

He said fire and rescue had spotted gas bottles in the Oute.

"Witnessing this event and people also recorded things on social media platforms on their phones, etc.," Ashton said. "If there are witnesses to this incident, we would like to speak with them and ask if they could visit one of our police stations, Melbourne West Station on Spencer Street, and we could interview them and hopefully get testimonies from them, have seen things. "

Aaksh Verma made a statement to the police after watching the incident. He worked when he heard a bang. He went outside and said he saw a flame that was diagnostically rolled on Target. Then he saw the police approach. "A black guy approached the cops as the cops stayed in the car," Verma said.

"I'm not sure if he opened the door or if the policeman opened the door."

As soon as the door of the car was open and the policeman was still seated, the man began stabbing him with something sharp, Verma said. He was not sure if the man was in contact with the police officer or if the police officer's vest prevented him from being stabbed.

The police officer's partner stepped out from the other side of the vehicle and entered to intervene.

"He [the man] withdrawn. "

Both policemen tried to use pepper spray and spoil the guy, but it seemed to have no effect, Verma said.

"The person did not look like she wanted to run away, she wanted to stay and fight," Verma said. "He did not say anything. He had about a million chances to run away, there are many ways. "

Verma said the spectators tried to help while the police were waiting for the backup, one with a trolley and the other with a chair.

On Friday evening, Prime Minister Daniel Andrews expressed his condolences.

He said "we are not defined by it" and thanked the police for their "very quick response" and said, "they made every one of us proud".

"Strangers and bystanders who knew no one was involved entered without a moment's hesitation … they too are people whose qualities we are all proud of," he said.

"We align our thoughts and prayers to all injured and to our deepest compassion."

He said people should turn to Lifeline, Griefline and Beyond Blue if they were affected.

"These are traumatic events, they are scary," said the premier. "Many will have seen her first-hand."

The incident occurred two days after the trial of Melbourne man James Gargasoulas, who had committed 33 charges on January 20, 2017, including six assassinations for a deadly incident, allegedly driving a car through pedestrians along Bourke Street Mall and in London drove six people killed.

No cars are allowed in the part of the street where the incident occurred. The area has been protected by concrete bollards since the tragedy in January 2017. However, there is access for police cars, trams and garbage trucks.

Witnesses said the police were at the scene within minutes.

Neil McKeller, who works at Hylands Bookshop on Bourke Street, told Guardian Australia that he heard a loud explosion and then gunfire.

"We heard the blast and later shots," McKellar said. "We heard it, but we did not know what it was."

The buildings surrounding the incident were locked up and the police blocked parts of Bourke and Swanston streets. The trams on both roads were also stopped.

The witness Meegan May was in a tram at the moment of the incident.

"Some people in the trams said someone had a knife, and when I got up and looked through the back window," she told the ABC. "I was able to set a big ute on fire that crossed the street.

On the other side, it stopped, and then I saw a man and two policemen trying to calm him down. He waved his arms, someone said he had a knife – I could not tell where I was.

And not long after, I heard a loud bang that sounded a bit like a shot, nothing like an explosion, and then a person near me said she could see someone who was giving someone a chest print and an ambulance and 50 police cars out of nowhere, not long after. "

The police have asked all witnesses and anyone with video footage to send them via a link on the Victoria Police Facebook page.

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