Police shot the man when he approached officers swinging the knife. The video also shows another individual, dubbed "trolley man", quickly barging in with a trolley directly hitting the attacker and stalling him to buy the police some time.
"He is known to both Victoria Police and federal intelligence authorities", Ashton said, adding that "there is no ongoing threat that we know of.as I speak to you".
One of the officers shot him in the chest, Ashton said.
A witness claimed to see a pedestrian struck by the vehicle while another said her friends had seen someone with a knife in the area and she'd been told "he'd stabbed a security guard".
Police were dispatched to the scene after reports of a auto fire near Bourke Street, a main thoroughfare in Australia's second-largest city, at about 4:20pm local time.
"He was the closest person to the offender", a detective said.
His brother will go on trial next year on separate terror-related charges - accused of trying to acquire a firearm and kill people in a New Years' Eve crowd.
Mr Clayton said investigators did not believe there were any other assailants.
"There was a guy stabbed and there was a vehicle explosion in Bourke Street", he said. "It's very early in the stages of the investigation", Supt Clayton said.
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At least two members of the public bravely stepped in to help police. "Fire then started in the vehicle and he's got out of the vehicle". As the attacks continued, one policeman shot the suspect in the chest, leaving him in a critical condition.
"They ran into a cafe and locked themselves in a kitchen", he said.
The attacker, Hassain Khalif Shire Ali, 30, had his passport cancelled in 2015 after it was learned he planned to travel to Syria, police said.
Prime Minister Scott Morrison condemned the "evil and cowardly attack".
Victorian premier Daniel Andrews' office sent out a statement following his press conference.
"It's the center of Melbourne, where a lot of the transportation changes over ... it's probably the busiest part of Melbourne and late on a Friday", said Meegan May who witnessed part incident from a nearby tram.
"People were running everywhere".
Bourke Street also reopened on Saturday morning, and a Reuters reporter said there was an increased police presence in the area.
Ali, who was driving a ute, loaded with gas bottles, into the Bourke Street, allegedly set it alight and began stabbing members of the public Friday.