A Somali-Australian man, 20, has been arrested after allegedly planning to shoot 'as many people as he could' in Melbourne's Federation Square on New Year's Eve.

Police allege the young Muslim terror suspect had tried to obtain an automatic rifle to carry out the act and was inspired by Al-Qaeda, a radical Islamist group.

He was arrested by specialist officers inside his home in Werribee, in Melbourne's west, on Monday afternoon and taken into police custody for questioning.

The arrest followed raids on his home in Werribee, a relative's house in Meadow Heights and a computer business in nearby Footscray where he worked part-time.

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A Somali-Australian man (pictured, centre), 20, has been arrested after allegedly planning to shoot 'as many people as he could' in Melbourne's Federation Square on New Year's Eve

The man allegedly accessed a guidebook produced by al-Qaeda containing information on how to commit a terrorist act (Federation Square pictured on New Year's Eve in 2015)

Police allege the young Muslim terror suspect had tried to obtain an automatic rifle to carry out the act and was inspired by radical Islamist group Al-Qaeda (fighters pictured in 2014)

The practising Muslim was born in Australia, is an Australian citizen and his parents were from Somalia, Deputy Commissioner Shane Patton said on Tuesday.

'The male is one of our high-risk persons of interest. We have been monitoring him for a very lengthy period of time,' he told reporters on Tuesday.

The man is being interviewed in relation to the offences of preparing to commit a terrorist attack and collecting documents to facilitate a terrorist act.

It's alleged the man accessed a guidebook produced by al-Qaeda containing information on how to commit a terrorist act and use firearms, guns and handguns and rifles.

Authorities were keen to stress that no firearm was obtained.

But if the attack had been successful the human cost would have been 'catastrophic ... horrendous', Mr Patton said.

Police said the man was a ‘high-risk’ person of interest who they had been monitoring since January

He is also believed to be associated with a group of Victorian extremists, and could face a maximum penalty of prison in life when he is formally charged on Tuesday

The practising Muslim was born in Australia, is an Australian citizen and his parents were from Somalia, Deputy Commissioner Shane Patton said on Tuesday

WHAT WE KNOW * He's an Australian-born, 20-year-old man. * Allegedly plotted to obtain a firearm to "shoot and kill as many people as he could" at Melbourne's Federation Square on New Year's Eve. * Lives with his Somalia-born parents in Werribee, is a Muslim but not linked to any specific mosque. * Police said he'd been "high-risk person of interest" since early 2016 and claimed he would become "energised" online when learning of overseas terrorist attacks. * Allegedly obtained Al-Qaeda material through the internet and was an Islamic State sympathiser. * Arrested on Monday by Victoria Police, Australian Federal Police and ASIO officers. * Expected to be charged on Tuesday with planning to commit a terrorist attack and collecting documents to facilitate a terrorist act. Source: Victoria Police, Australian Federal Police Advertisement

The man is also believed to be associated with a group of Victorian extremists.

'We won't identify who they are. It is a very small community of extremist,' Mr Patton said.

'There is no ongoing threat posed in respect to New Year's Eve, Christmas or any other area.'

AFP Acting Deputy Commissioner Ian McCartney said the charges that were expected to be laid were 'serious'.

'One of the charges carries a maximum penalty of life in prison,' he said.

Since September 2014, when the national threat terrorism level was raised to 'probable', the AFP has worked with its state and territory partners to thwart a number of plots.

So far, 74 people have been charged as a result of 347 counter-terrorist investigations.

'I would like to reassure the people of Victoria that the teams in Victoria, but also around Australia, are working day and night. They are working 24/7 to keep Australia safe,' Mr McCartney said.

In 2016, more than 500,000 revellers flocked to Melbourne's CBD to ring in the new year as tonnes of fireworks were shot from 22 city buildings.

In 2016, more than 500,000 revellers flocked to Melbourne's CBD to ring in the new year as tonnes of fireworks were shot from 22 city buildings (pictured, 2015 celebrations)