There are fears an innocent man may lose the use of his left arm after he was seriously injured during a botched police raid in Melbourne.

Key points: The arrest was the result of mistaken identity, police say

The arrest was the result of mistaken identity, police say Officers were searching for a man suspected of a home invasion and carjacking

Officers were searching for a man suspected of a home invasion and carjacking In a statement, police say they "acknowledge the distress this situation has caused the victim", who remains in hospital

The operation in Fitzroy, in Melbourne's inner north, is now the subject of an internal Victoria Police investigation.

Residents said officers raided their apartment, which adjoins LGBT community bookshop and cafe Hares & Hyenas on Johnston Street, about 2:00am on Saturday.

"The police broke in through our garage as they thought that an armed member of a 'Lebanese' gang was inside," bookshop co-owner Rowland Thomson said in a post on Facebook.

"At no stage did they identify themselves as police. They just stormed into a dark room shining torches and it was impossible to identify them as police."

Mr Thomson said another man, Nik Dimopoulos, ran from the building "thinking it was an anti gay home invasion", and was subsequently arrested on the street.

"He had his hands tethered behind his back way beyond what can be endured," he said.

"He could only see boots and rifles and was assuming he was going to be bashed or shot. He said he thought he was about to be killed."

Nik Dimopoulos was mistaken for a carjacking suspect, police said. ( Supplied )

Mr Dimopoulos was "in hospital with the likelihood of losing the use of his left arm, which is broken in several places", Mr Thomson said in the post.

He also sustained major bruising on his head after being thrown onto the footpath.

"The surgeon described the [arm] injury as 12 on a scale of one to 10."

Mr Dimopoulos, who runs gay dance parties in Melbourne and Sydney, is well known in the LGBT community.

His lawyer, Jeremy King, said his client was "deeply traumatised".

"Nik has undergone major surgery and has a long road ahead," he said.

"All involved are considering their legal options and have instructed us to take all steps to ensure the police officers involved are held to account for their actions."

Mistaken identity

Victoria Police confirmed Mr Dimopoulos was mistakenly identified as the suspect in a home invasion and carjacking case.

Officers had been tracking a stolen car which led them to the Fitzroy address, where police say they saw a man fitting the description of their suspect.

The apartment that was raided is attached to queer community bookshop Hares & Hyenas. ( ABC News: Damian McIver )

"The male was arrested on a roadway after leaving through a front door," Victoria Police said in a statement.

"The male sustained serious injuries as a result of the arrest and was subsequently conveyed to hospital where he remains.

"The man police arrested was mistakenly identified as the suspect police were searching for that had fled the stolen vehicle nearby.

"Victoria Police acknowledge the distress this situation has caused the victim and the incident will be thoroughly investigated by Professional Standards Command."

'It would have been terrifying'

Premier Daniel Andrews said other bodies could also be involved in the investigation.

"Whether it be Professional Standards or others, we will look very closely at what has happened and how it could be that what has occurred has come to pass," Mr Andrews said.

He said the Government was reaching out to Mr Dimopoulos to offer "any assistance that we can provide".

"It would have been terrifying," Mr Andrews said.

"I want to assure every Victorian he is getting the best of care and we will establish what has gone on here."

The incident has led to renewed calls for the state's Independent Broad-based Anti-corruption Commission (IBAC) to investigate more complaints of police misconduct.

A Victorian parliamentary committee last year found the system for investigating police misconduct was "extraordinarily complex and confusing" and based on an "intricate, overlapping and sometimes fraying patchwork of laws, policies and processes".

It called for a police corruption and misconduct division to be created within IBAC.

Anthony Kelly, from the Flemington and Kensington Community Legal Centre's Police Accountability Project, said the Fitzroy raid should be investigated by IBAC.

"Time and time again, police investigating other police has proven to be woefully inadequate and not achieving the sort of scrutiny and accountability that we need in Victoria," he said.