Police investigating an alleged terrorist plot in Melbourne feared a multi-person, multi-weapon strike that would include random stabbings, bombings and possible suicide attacks.

Investigators moved on the Melbourne Christmas Day terror suspects on Thursday night to thwart what they believed would be a co-ordinated multi-target attack in the CBD.

The decision to arrest was made in the last five days after some of the suspects were alleged to have conducted surveillance operations near Federation Square, St Paul's Cathedral and Flinders Street Station.

The alleged plot was designed to create maximum casualties and widespread panic.