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It's believed the raids are linked to yesterday's terror attack.

Memories remain fresh of a fatal but not terror-related attack on the same street past year, in which a man drove his auto at pedestrians at high speed, killing six people and wounding about 30. One of the victims also died and the two others were admitted to hospital.

"We are now treating this as a terrorist event", said Victoria Police Chief Commissioner Graham Ashton, who said the suspect was "someone that is known" to police through family connections. He died in hospital.

Police were dispatched to the scene after reports of a vehicle fire near Bourke Street, a main thoroughfare in Australia's second-largest city, at about 4:20pm local time.

Commissioner Ashton says Shire Ali had a criminal history for cannabis use, theft and driving offences.

He said Mr Shire Ali had been known to authorities but had not been considered a threat at the time.

"Obviously, a focus of the investigation will be. how and why and when and where he moved along that path of radicalisation".

Police were initially unable to get in touch with Khalif's wife and believed she was missing, but have since found her and spoken to her.

Additional security and a greater police presence has been placed in Melbourne's CBD for today.

Melbourne's Lord Mayor Sally Capp sought to reassure the public and praised the police for their swift response.

She told reporters it was "wonderful" to see Melburnians coming back into the city centre.

Officers were confronted near the burning vehicle by a man "brandishing a knife and threatening them" while passers-by called out that people had been stabbed, he said.

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"You're trained to shoot to kill, not to shoot to wound".

Commissioner Ashton also says there was no suggestion that Khalif was inspired by James "Dimitrious" Gargasoulas, who is now on trial facing six charges of murder after allegedly mowing down pedestrians in January 2017.

Results of a post-mortem examination on Shire Ali's are expected to be available in a few days time, when investigators will be able to comment on whether the assailant was drug-affected.

"The assessment was made that while he held radicalised views he did not pose a threat in relation to national security", McCartney said.

The counter-terrorism command has taken a lead role in the investigation, but police at first said there was no known link to terrorism and were investigating.

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

"I'll never accept that violent extremism should be a way of life for a big city like Melbourne".

Mr Ashton said police were "doing security reassessments of these events in light of what's occurred", but there was "no ongoing threat we're now aware of in relation to people surrounding this individual".

"The cops were trying to hit him with batons and he wasn't going down", he said. One of them died of his injuries in hospital.

"They must be proactive, they must be alert and they must call this out in their communities", he said, adding the government and wider community needed to work respectfully with them.

Tributes also flowed on social media for Mr Malaspina.