'Terrorist' on stabbing rampage shot dead in Melbourne

A vehicle can be seen on fire in Bourke Street Melbourne

Australian police shot a knife-wielding man who is believed to have stabbed three people in Melbourne's city-center Friday, killing one of them.

Chief Commissioner Graham Ashton said on Saturday the Somalian-born Khalif, also known as Hassan Shire, was the brother of a man arrested by police late past year in relation to committing acts in preparation for a terrorist attack.

Victoria's ambulance service said that three injured people were being treated at the scene.

IS, which often claims responsibility for such attacks, has also done so in this case, though it presented no evidence that the man had direct affiliations with the group.

Clayton said police had arrived at Bourke Street, a busy shopping thoroughfare, in response to a auto fire.

IS, which has suffered heavy battlefield setbacks in the past year, often claims attacks without any clear connection.

The busy shopping area came to a standstill during the incident, with police officers and vehicles lining Bourke, Swanston and Russell Streets.

Speaking on the Today Show , he said Khalif's vehicle contained gas cylinders and it is believed he meant to cause an explosion.

Law enforcement officers responding to a auto fire in the city's central business district were "confronted by a male brandishing a knife and threatening them", Victoria police superintendent David Clayton told reporters Friday.

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Premier Daniel Andrews called the deadly attack an "evil act" but said Victorians should not be defined by it.

Australia has been on alert for such violence after a Sydney cafe siege in 2014, and its intelligence agencies have stepped up scrutiny, though police said there was no warning of the latest attack. The man, who was known to state police and federal intelligence authorities by way of his family associations, was taken to hospital in a critical condition but has since died, police said.

Police have asked members of the public to send images and video of the incident in order to help with their investigation.

One of those officers was forced to shoot Shire Ali in the chest - the 30-year-old later died in hospital.

He said security for large upcoming public events, including commemorations for Remembrance Day on Sunday, would be reassessed and possibly boosted.

A staunch United States ally, Australia has been on alert for such violence after a Sydney cafe siege in 2014, and its intelligence agencies have stepped up scrutiny, though Ashton said there was no warning of the latest attack.

A witness, Markel Villasin, told Australian Broadcasting Corporation radio: "Bystanders were yelling out "just shoot him, just shoot him".

The Somali-born terrorist was brought down by Victoria State Police after confronting officers on a busy inner city street in the state capital, authorities said.

"He was breathing and he was bleeding out".

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