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Multiple videos posted to social media showed a man carrying a knife and running at police, who had batons, guns and tasers drawn.

The incident, which brought central Melbourne to a standstill in the late afternoon rush, came after police responded to reports of a burning vehicle. The reason for the attack has yet to be confirmed.

Footage from the scene shows a man swinging a knife at two uniformed officers near a burning auto before he was shot. As the attacks continued, one policeman shot the suspect in the chest, leaving him in a critical condition.

"He's known to police mainly in respect to relatives he has that are certainly persons of interest to us".

Counter-terrorism police and intelligence officers are still piecing together how the incident occurred, but it is known the attacker drove a 4x4 truck loaded with gas bottles into the bustling city centre at around 4:00PM (0500 GMT) on Friday evening.

Ambulance Victoria said it assessed three people at the scene, who were then taken to hospital.

Witnesses said the attacker stabbed the victim, believed to be aged in his 60s, in the face.

"It's very early in the stages of the investigation", Supt Clayton said. As flames engulfed the vehicle, the man attacked them and they shot him in the struggle, he said.

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Video from the scene showed a man swinging a knife at two police officers near a burning auto before he was shot. He later died in hospital while under armed guard.

Victoria Police Chief Commissioner Graham Ashton told a press conference the attack was being treated as an act of terrorism.

UPDATE: A MAN has been shot by police after setting a auto on fire and allegedly stabbing a number of people in Melbourne's Bourke St. In several clips two men can be seen attempting to assist officers.

"A moment later, I heard a loud bang, to me it sounded like a gunshot", she said. One of the victims also died, while the two others were hospitalized.

"This is an evil and terrifying thing that has happened in our city and our state today and we condemn it", he said.

The street was closed off and shops, including two large department stores, were evacuated.

The street where the auto caught fire was the scene in January 2017 of a fatal incident in which a man drove his vehicle at pedestrians at high speed, killing six people and wounding about 30.