BOURKE STREET CHAOS: Car explodes, man with knife shot by police

Watch: Melbourne police shoots man on a stabbing spree

Hundreds of people watched from behind barricades as police tried to apprehend the attacker.

Two other people are in hospital after being stabbed in a busy Bourke Street on Friday afternoon.

A man with a shopping trolley has been praised for trying to subdue a knife-wielding attacker who had just stabbed three people in Melbourne.

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

"Respects to Trolley Man and also to those very calm cops who remained very professional and surely prevented more people from being injured", one person wrote online.

Australian police say the pickup truck contained several barbeque gas cylinders. And that the area has been cordoned off.

"There is no known links to terrorism at this stage we will keep an open mind as to whether there is any link".

Police work at the crime scene following a stabbing incident in Melbourne on November 9, 2018.

Addressing the media, Superintendent David Clayton said that the man who attacked the people was shot in the chest and he is now critically injured.

Islamic State has claimed the attack was carried out by one of its members, according to its propaganda agency Amaq.

Witnesses told The Age they were shopping in the area when they saw a man throw what they believed to be a bomb into a vehicle before it exploded.

Commissioner Ashton said weekend events at Flemington and Remembrance Day commemorations will still go ahead as planned.

Prime Minister Scott Morrison condemned the "evil and cowardly attack".

One witness told ABC the deceased looked to be in his 50s or 60s.

"It's so chaotic", witness Sarah told Tom Elliott.

"He was breathing and he was bleeding out".

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.

Australian police on Friday said they were treating a deadly knife attack in Melbourne as an act of terror, adding that the suspect was originally from Somalia and was known to intelligence authorities.

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