Police are investigating whether the Brighton siege gunman took an escort worker hostage in a bid to lure officers into a deadly ambush.

Key points: One man was killed, a woman was taken hostage and three police were injured before the gunman was shot dead

One man was killed, a woman was taken hostage and three police were injured before the gunman was shot dead Islamic State said one of its "soldiers" was responsible, but police questioned links with the group

Islamic State said one of its "soldiers" was responsible, but police questioned links with the group The gunman, Yacqub Khayre, had a history of violent crime but was on parole

Gunman Yacqub Khayre injured three officers during a shoot-out that ended in his death at an apartment building in Melbourne's Bayside area on Monday afternoon.

The 29-year-old, who has an extensive criminal history and was released on parole in December, had made a booking with the escort worker, taken her hostage and killed a man who was working at the building.

Police said it was possible Khayre, from Roxburgh Park in Melbourne's north, may have been attempting to lure police by taking the escort hostage.

"We still don't know exactly whether that was the case," Victoria Police Chief Commissioner Graham Ashton said.

"Certainly [there was] a booking made to see an escort at the premises. He's then turned up at the premises with a firearm, that's all being weighed into the calculations.

Several police were injured in a shoot-out with Yacqub Khayre, who was shot dead. ( ABC News: Patrick Rocca )

"We haven't found anything like a note or any comment around that.

"At this stage it's just too early to know how random this was in terms of whether it was something that he was planning or thinking about, whether police were the target or he's seized the opportunity he thought was presented to him."

Corrections Victoria confirmed Khayre, who had a history of drug abuse, had been fitted with an electronic monitoring device as part of his parole conditions when he was released to ensure that he kept to a 10:00pm curfew.

An alert that the device had been tampered with was received on Monday about 4:00pm, a Corrections spokesman said.

The authorities monitoring the device contacted police and the offender's parole officer.

Channel 7 reported its newsroom received a phone call shortly before the shoot-out from a man who said: "This is for IS. This is for Al Qaeda."

It also reported a distressed woman could be heard on the line, before the man said, "This is the Brighton hostage".

How the siege unfolded: Emergency services respond to reports of an explosion just after 4:00pm

Emergency services respond to reports of an explosion just after 4:00pm Officers discover the body of a man in the foyer of the building

Officers discover the body of a man in the foyer of the building A woman calls triple-0 to say she is being held hostage

A woman calls triple-0 to say she is being held hostage A man calls Channel 7 and says: "This is for IS. This is for Al Qaeda."

A man calls Channel 7 and says: "This is for IS. This is for Al Qaeda." Yacqub Khayre, 29, leaves the apartment and starts firing at officers, injuring three

Yacqub Khayre, 29, leaves the apartment and starts firing at officers, injuring three Khayre is shot dead by officers

Khayre was charged and acquitted by a jury over a plot to attack the Holsworthy Army barracks in Sydney in 2009.

Three of his co-accused were found guilty of planning the terrorist attack as payback for Australia's military action in the Middle East.

Earlier, the Islamic State (IS) group claimed responsibility for yesterday's siege.

He also killed a man working at the apartment building, who police said was an Australian citizen born in China.

Commissioner Ashton said the siege was being treated as a "terrorism incident", but warned that IS's claim was "the sort of thing they jump up and say a lot" and there was no evidence to indicate Khayre was acting on a message from overseas.

Sorry, this video has expired Brighton siege: Police 'treating it as a terrorism incident'

"[Khayre] has a long criminal history with us, but also from what we're piecing together comments he made related to ISIS and Al Qaeda certainly for us put this in the terrorism category," he said.

"We don't yet know if this was something he was really planning or whether it was just an ad hoc decision that he's made just to go off tap like this."

Khayre 'known to have connections' with extremism

Commissioner Ashton said Khayre was released on parole late last year after serving jail time for unrelated offences.

"He has recently done some jail time, he got out late last year and has been on parole at the time of this offending last night," he said.

"This person wasn't someone around which we had major concerns at this time, and we had nothing to suggest [he was planning] what he did suddenly decide to do."

Emergency services block the street as they search Khayre's home in Roxburgh Park. ( ABC News: Guy Stayner )

Prime Minister Malcolm Turnbull said he had raised "grave questions" with Victorian Premier Daniel Andrews about the state's parole laws.

"[Khayre] was known to have connections, at least in the past, with violent extremism. He was a known, violent offender," Mr Turnbull said.

Mr Andrews said the state had the country's toughest parole laws and there were about 800 fewer people out on parole since a recent review.

Police this morning searched a Roxburgh Park home, where Khayre had been living with his mother, and seized computers and electronics.

IS published a statement via its Amaq propaganda arm, which said the attack was carried out by one of its "soldiers".

The street outside the serviced apartments was cordoned off as police investigated. ( ABC News: Patrick Rocca )

Stand-off began with reports of explosion, man killed

Khayre was shot dead following a stand-off with police which lasted for more than an hour at serviced apartments on Bay Street in Brighton.

Police say it is possible Khayre may have attempted to lure police by taking a hostage. ( ABC News: Patrick Rocca )

Commissioner Ashton confirmed the call received by Channel 7 was being investigated.

The siege began just after 4:00pm when emergency services responded to reports of an explosion at the apartment building.

Police discovered the body of a man with gunshot wounds in the foyer.

Commissioner Ashton confirmed the man worked at the apartment building, and said he was "at the wrong place, at the wrong time".

Just before 6:00pm, Khayre left the building and fired at police with a shotgun, who returned fire and killed him.

Three male officers were shot by the man during the shoot-out.

All sustained non-life threatening injuries. Two had hand injuries and one was injured in the neck.

A woman, in her 20s, who was held hostage by Khayre was rescued.

Police confirmed she was an escort worker, whom Khayre had called.

Specialist police were on the scene shortly after the woman taken hostage called triple-0. ( ABC News )

Police believe gunman acted alone

Commissioner Ashton said police did not have any information to suggest there was any ongoing threat to the community.

"There is nothing that we've found thus far that would suggest to us that this was anything that was planned, or done in concert with others," he said.

"We believe at this stage that he was acting alone and there isn't an ongoing threat in relation to any plot or anything around this individual.

"He hasn't been someone who has been a major concern in relation to terrorism aspects. It's more general criminal offending he's been involved with.

"So there really wasn't anything sitting there in recent times that suggested he was about to do this from an intelligence point of view."

Police said they expected to spend most of the day at the Brighton crime scene. ( ABC News: Patrick Rocca )

Jacinta Carroll, who heads the Counter-terrorism Policy Centre at the Australian Strategic Policy Institute, said Amaq's use of the term "soldier" when referring to the attack suggested Khayre was not directly involved with IS.

"That's the language they use when they have confirmed the person appears to align with an Islamist extremist ideology, but they weren't involved in it," she said.

Mr Turnbull said Australia's terror threat level remained "probable".

The siege at the serviced apartments in Brighton lasted for more than an hour. ( ABC News: Patrick Rocca )

'We all hit the deck'

Icy Agustsson, who lives two houses away from the Roxburgh Park property, said he saw the gunman speaking to his mother last week.

He said he had no idea about Khayre's criminal history.

Graeme Hisgrove was at home with his wife and two teenage children during the siege. ( ABC News )

"They seemed friendly," he said.

"I don't talk much to them because they kept to themselves. People do keep to themselves in this area."

Graeme Hisgrove, who lives next door to the Brighton serviced apartments, said police used his backyard during their operation.

"I was out in the backyard and I heard a large bang, and when I went out on the street to see what was going on, all the police were there and told us to get back in the house," he said.

"I ran back into the house and next thing the Special Operations Group turned up and went through the house and then staked out on our boundary.

"We were just in the front room of the house and all the rapid fire started, so we all hit the deck on the floor and just didn't know what was going on."