Heavily armed police have foiled an 'ISIS-inspired' terror plot to attack multiple locations in Melbourne's CBD on Christmas Day, after raids across the city.

Victoria's Joint Counter-Terrorism task force arrested seven people after executing five search warrants at homes in Melbourne's north and west, including Flemington, Meadow Heights, Dallas, Campbellfield and Gladstone Park, on Thursday and Friday.

Four Australian men, aged between 21 and 26, and one Egyptian-born Australian citizen, were taken into police custody over their alleged involvement in preparing to commit a terrorist attack on Christmas Day.

All five were known to police and had been under police surveillance for around two weeks, with police alleging they intended to target landmarks Federation Square, Flinders Street train station and St Paul's Cathedral with bombs, knives and guns.

Abdullah Chaarani, 26, was the first of the group to appear in court on Friday and was charged with 'preparing for, or planning a terrorist attack'.

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Heavily armed police have foiled a terror plot to attack multiple locations in Melbourne's CBD on Christmas Day after raids (pictured) across the city

Police remained at a property in Meadow Heights on Friday following raids on Thursday night

It will reportedly take weeks for police to collate all the information gathered in the raids

Police have foiled a terror plot to attack iconic Melbourne locations including Melbourne's Flinders Street Station (pictured) on Christmas Day

Federation Square (right) and St Paul's Cathedral (left) were also to be targeted

Mr Chaarani did not make an application for bail and was remanded in custody.

Wearing a black Adidas t-shirt and sporting a long beard, he looked calm as he stood handcuffed in the dock at the Melbourne Magistrates Court, The Age reports.

It will reportedly take weeks for police to collate all the information gathered in the raids and Mr Chaarani's not due to reappear in court until next April.

His court appearance came as IT worker Zakaria Dabboussi was named as another man taken into custody after police stormed his Gladstone Park home on Thursday.

Police Chief Graham Ashton said he believed the 'multi mode' terror threat had been 'neutralised' following the coordinated anti-terror raids which uncovered an improvised explosive device.

'The attack had the potential to cause significant community harm,' he said.

Zakaria Dabboussi was taken into custody when heavily armed police officers stormed his Gladstone Park home on Thursday

Police said the men in custody were known to police and under close surveillance before the raids

'The community should be concerned but should be reassured that we have got on top of this particular issue.'

He said police believed the alleged terrorists had planned to detonate an explosive device and attack bystanders with hand-held weapons.

'These are self-radicalised... (but they were) inspired by ISIS and ISIS propaganda,' Mr Ashton said.

'If this had got under our guard this would have been a significant attack.'

He said there will be heightened security at holiday events over the next week, including the Boxing Day Test match and Christmas Carols concert, but assured the public there was no intelligence to suggest there were any other threats planned.

A woman wearing a niqab chats with a police officer outside a home in Melbourne

A woman approaches a group of police officers as they continue conducting a search warrant

A man holds a young girl's hand as he approaches the police raids in Meadow Heights

Four Australians and one Egyptian-born Australian citizen are in police custody and are expected to be charged for their alleged involvement in preparing to commit a terrorist attack

Officers were still conducting a search of a home in Meadow Heights (pictured) on Friday

Police Chief Graham Ashton and Premier Daniel Andrews said there had been seven arrests, with five expected to be charged with preparing a terror act

Police Chief Graham Ashton (pictured) said he believed the 'multi mode' terror threat had been 'neutralised'

A forensic investigation is still underway at a property in Meadow Heights where police are believed to have found 'the makings of an improvised explosive device'

TERROR RAID ARRESTS Counter terrorism officers arrested six men and one woman during raids across Melbourne on Thursday night and Friday morning. A 20-year-old woman and a 26-year-old man, both from Meadow Heights, were released without charge. Four Australian men of Lebanese decent and an Australian citizen born in Egypt remain in custody. Police said charges relating to preparing a terror attack will be laid on: a 24-year-old Meadow Heights man

a 26-year-old Dallas man

a 22-year-old Campbellfield man

a 21-year-old Flemington man

a 21-year-old Gladstone Park man Advertisement

Premier Daniel Andrews said condemned the terror attack, but urged Victorians not to consider it an 'act of faith'.

'What was being planned was not an act of faith, was not an act of religious observance, it was instead in its planning, an act of evil, a criminal act,' he said.

'All of us, particularly at this special time of the year, should remember and understand that our values, our multiculturalism, our diversity, is a great strength.'

'Perhaps our greatest strength, even when confronted by these sorts of challenges,' he added.

He also thanked the 400 officers involved in the raids for their 'vigilance and absolute determination' as he urged Victorians to 'go about their business'.

Prime Minister Malcolm Turnbull commended the counter-terrorism team for thwarting one of the 'most substantial terrorist plots' the nation has ever seen.

He said 12 terrorist plots had be foiled and 57 people charged with terror offences since escalating Australia's threat level to probable in September 2014.

Mr Turnbull urged Australians not to live in fear during the festive season and instead embrace the 'happiness and joy' the terrorists sought to disrupt.

Premier Daniel Andrews (pictured) said condemned the terror attack, but urged Victorians not to consider it an 'act of faith'.

Seven people were arrested after police raided numerous properties across Melbourne's north west on Thursday night and Friday morning (pictured)

Seven people were arrested after police executed search warrants at homes across Melbourne

An apartment building in Melbourne's north is believed to have been targeted in the raids

'What these criminals seek to do is to kill, but they also seek to frighten us, to cower us into abandoning our Australian way of life,' Mr Turnbull said.

'They want to frighten and divide Australians. They want us to turn on each other. We will not let them succeed,' he added.

Of the accused - a 24-year-old Meadow Heights man, a 22-year-old Cambellfield man, a 21-year-old Flemington man and a 21-year-old man from Gladstone Park - are yet to be charged.

Mr Ashton said this will occur when they appear in court on Friday afternoon.

Two others arrested during the raids, a 20-year-old woman and 26-year-old man, were released without charges.

Prime Minister Malcolm Turnbull commended the counter-terrorism team for thwarting one of the 'most substantial terrorist plots' the nation has ever seen

The Australian Federal Police, Victorian Police and ASIO were involved in the raids which started at around 8pm on Thursday and continued into Friday.

Police in heavy body armour gathered in Broadmeadows on Thursday night before being deployed to suburbs across the city overnight.