ISIS claims responsibility for Melbourne siege that left two dead

The Nepean Highway at Brighton was closed as the siege unfolded

Siege with a hostage situation in Australia's Melbourne on Monday is now being treated as a terrorist attack, Australian Prime Minister Turnbull has announced.

Australian police have said they are treating a deadly shooting and siege in Melbourne as a terrorist incident, after the self-styled Islamic State terrorist group said it was behind the attack.

Amaq said the attack was launched to exact revenge for Australia's participation in a US-led coalition fighting against Daesh in Syria and Iraq.

Khayre was released on parole late past year after serving time for intent to cause injury and arson, which Turnbull said was a concern given his background and something that would be reviewed.

"This is for IS, this is for al-Qaida", gunman Yacqub Khayre is reported to have told staff in the newsroom of Australia's Channel 7 during the hours-long siege. The woman was rescued unhurt, but three police officers suffered non-life threatening gunshot wounds. AAP/Julian Smith/via REUTERS Australian police search what is believed to be the home of gunman Yacqub Khayre, who was shot dead by police on Monday after he shot a man dead and held a woman hostage, in the Melbourne suburb of Roxburgh Park in Australia, June 6, 2017.

The Monday siege began when the suspect - 29-year-old Somali-born Australian Yacub Khayre -solicited the services of a prostitute and asked her to meet him at an apartment block to the city's south.

Senior officials confirmed that Khayre had been acquitted of a plot to attack a Sydney army base in 2009 and was on parole for a violent home invasion at the time of Monday's siege.

Khayre went to the foyer and shot Mr Hao before returning to his room, where he held the 36-year-old escort hostage.

"Subsequently he (Khayre) came out of the apartment with a shotgun and commenced to fire at police at the entry-way to the apartments".

The prime minister questioned why Khayre was not behind bars, calling it "a shocking cowardly crime".

Ashton said there was nothing to link the violence with a van and knife attacks in London in which three terrorists murdered seven people and wounded some 50. He was recognized as a refugee under Australia's humanitarian migration program and later became a citizen.

The Victorian Supreme Court was told during that case that Khayre had been a worshipper at a Melbourne mosque and at a nearby prayer hall regarded by police as an "incubator" of extremist ideology.

He was jailed in 2012 over a violent burglary in Melbourne, where he was found to have repeatedly struck a woman and her father.

After police tried to negotiate with Khayre, officers stormed the building and shot the gunman dead.

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