Prime Minister Scott Morrison has dismissed the mental health of the Bourke Street attacker as an "excuse" for his deadly actions.

He has instead laid the blame at home-grown Islamic radicalisation of Hassan Khalif Shire Ali and called on imams and the Muslim community to do more to counter threats of attack.

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Shire Ali, 30, stabbed three people in Melbourne's CBD on Friday, killing renowned restaurateur Sisto Malaspina. Shire Ali later died in hospital from gunshot wounds.

"This bloke, radicalised here in Australia with extreme Islam, took a knife and cut down a fellow Australian in Bourke Street," he told Network Ten.

"I am not going to make an excuse for that. Of course issues of mental health and all these other things are important.

"He was a terrorist. He was a radical extremist terrorist who took a knife to another Australian because he had been radicalised in this country.

"We can't give him excuses."

Sorry, this video has expired Police and bystanders confront the knife-wielding Hassan Shire Ali.

Mr Morrison said he wanted imams to pay greater attention to people at risk of radicalisation and called on them to report concerns to authorities.

He rejected suggestions he was using the incident as a racist dog whistle.

"That is the same, lame, old, tired excuse for not dealing with this problem," Mr Morrison said.

"I don't believe that is where the majority of decent, hard-working, respectable Australian Muslims are at.

"They want their community to be safer and there are people coming into their community and they are infecting their young people and others with hatred and false teaching, which is taking them off path.

"That has to be called out and it has to be stopped."

Somali-born Shire Ali moved to Melbourne in the 1990s, lit his ute on fire near one of Melbourne's busiest thoroughfares on Friday afternoon, before stabbing three passers-by.

One of his victims, the 74-year-old co-owner of the iconic Pellegrini's Espresso Bar, Sisto Malaspina, died at the scene.

Shire Ali died in hospital after being shot by a rookie police constable who was just three months out of the academy.

The Prime Minister's comments prompted a rebuke from Australian National Imams Council secretary Sheikh Moustapha, who told ABC Radio Melbourne it was "really wrong and unfair" to suggest his community wasn't doing enough to prevent radicalisation.

"We've been doing whatever we can in our capacity to eradicate extreme thoughts and potential acts of terror," he said.

"Obviously extremism and radicalism exists. It exists in Islam and a lot of other faiths and ideologies. It's not something we are denying.

"But for the Prime Minister to come out there and say the community's not doing enough or community leaders aren't doing enough, that's really wrong. We are doing as much as we can."

The sheik for Shire Ali's family, Isse Musse from the Werribee Islamic Centre, told the ABC Shire Ali appeared delusional leading up to the attack.

"He told them [his family] that he was being chased by people with spears," he said.

Professor Patrick McGorry, one of Australia's leading mental health experts, said the incident reinforced the need for mental health treatment.

"We should definitely not see the potential influences of untreated severe mental illness as in any way an excuse for shocking crimes like this," he said.

"It could however, be the crucial pathway to preventing them in future."

Calls for greater surveillance powers

Mr Morrison and Home Affairs Minister Peter Dutton have used the incident to call for greater surveillance of encrypted messages.

A bill designed to assist law enforcement and security agencies in accessing the encrypted messages of those it is targeting is currently before Parliament.

The laws would allow agencies to compel technology companies to help them de-crypt messages, and Labor has indicated it has concerns with the draft legislation.

Mr Dutton said nine in 10 of ASIO's targets were using encrypted messaging services.

"I hope over the last couple of days, Labor has been able to reconsider their position," he said.

"Because this encryption bill really is crucial to giving police and ASIO and other intelligence agencies the tool they need to disrupt and deter these activities."