A man who stabbed one person to death in a terrorist attack in Melbourne was known to police and was the brother of a man arrested on terror charges last year, Australian authorities say.

Somali-born Hassain Khalif Shire Ali, 30, set fire to a pickup truck laden with gas cylinders in a busy shopping area of the city on Friday, stabbing three people, one fatally, before he was shot dead by police.

Police said that “there are links” between Ali and Isis in the form of inspiration, rather than direct contact with the terror group. Counter-terrorism investigators were searching two properties in suburban Melbourne on Saturday morning as part of their investigation.

Victoria Police commissioner Graham Ashton said the man’s brother was arrested last year on charges of planning an attack in Melbourne and currently being held in prison awaiting trial.

“He is certainly someone who is known to both us and the federal authorities in relation to counter-terrorism and terrorism-related matters,” he told Channel 7’s Sunrise program.

“He is the brother of an offender or a suspect that we arrested late last year in relation to the preparation of a terrorist event.”

Police were first called to reports of a car on fire but when they arrived, were attacked by the man, who was armed with a knife.

Videos taken by bystanders show a lengthy confrontation between the police and the attacker, as bewildered shoppers pass by.

The man lunges repeatedly at the two officers with his knife, while they attempt to incapacitate him with pepper spray and a taser.

Gas canisters found in Melbourne vehicle as police treat stabbing incident as terrorism

One member of the public tries to help the police by hurling a metal shopping trolley at the knifeman as he charges across the street.

Eventually one of the officers draws his pistol and shoots the attacker in the chest, who then drops to the ground.

Melbourne knife attack Show all 9 1 /9 Melbourne knife attack Melbourne knife attack The body of the person stabbed to death during the attack lies underneath a white cover EPA Melbourne knife attack There was a huge police presence in Melbourne's city centre Reuters Melbourne knife attack Officers cordon off the scene AFP Melbourne knife attack Victoria Police Superintendent David Clayton speaks to members of the media REUTERS Melbourne knife attack A screenshot of a video of the man attacking police officers with a knife EPA Melbourne knife attack Police in Melbourne shoot a man who was attacking them with a knife Twitter/@fayfayang Melbourne knife attack There was a huge police presence in Melbourne's city centre Reuters Melbourne knife attack The burned out shell of the knife attacker's car AFP Melbourne knife attack Bomb disposal experts were called after gas canisters were found in the car the attacker had set on fire Reuters

Mr Ashton said that the knifeman and the three others who were stabbed by him, were taken to the Royal Melbourne Hospital, but he and one of the victims have now died from their injuries.

Police later found gas canisters in the killer’s vehicle. Isis claimed responsibility for the attack, with the group’s Amaq propaganda agency calling the perpetrator one of its “fighters”.

Australian media have reported that one of those injured was a businessman called Rod Patterson. Mr Patterson’s wife, Maree, posted on social media that he was hurt but is “doing OK given the circumstances”.

When the fire brigade arrived to put out the blaze, they discovered that there were several “barbecue-style” gas canisters inside. A bomb disposal team was then called, who made the scene safe.

Witnesses reported seeing the man throw an object into his car after he crashed it, setting it on fire.

Police have not yet confirmed his intentions, but Mr Ashton said it was fair to infer that he hoped to turn the vehicle into a bomb.

The police officers attacked during the incident only suffered minor injuries and their “cuts and scratches” are being treated at a police station in Melbourne.

Mr Ashton, however, denied claims that the man had shouted “Allahu Akbar!” during the attack and said he had not tried to decapitate anyone. One of the stab victims had suffered “significant head injuries”.

Aerial footage of area of Bourke Street incident in Melbourne

The attacker was born in Somalia but moved to Australia during the 1990s and most recently lived in northwest Melbourne, the chief commissioner also said. He was a “person of interest” to both the Victoria state police and Australian federal intelligence services.

He also had a minor criminal record and had been convicted of cannabis use and theft in the past.

Scott Morrison, the prime minister, has condemned the “evil and cowardly attack” and paid tribute to the courage of the police officers who responded.

“Australians will never be intimidated by these appalling attacks and we will continue to go about our lives and enjoy the freedoms that the terrorists detest,” he said in a statement.

The premier of Victoria, Daniel Andrews, praised the bravery of both the police and members of the public who tried to stop the attacker.

“This is an evil and terrifying thing that has happened in our city today,” he said at the same press conference.

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“Victorians can be assured that every member of Victoria Police are equal to the task, as they have demonstrated today. In the midst of tragedy you can find such pride in the work of bystanders to come to the aid of others.

“We will not, as a city and state, be defined by this act of evil. We will simply refuse to do that. We are bigger and stronger than this.

Mr Andrews also extended the “thoughts and prayers” of the city and state to everyone injured and “our deepest sympathies to the family of the deceased person”.

The leader of the opposition, Bill Shorten, who represents a constituency in the northwestern suburbs of Melbourne, echoed Mr Andrews’s words.

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“When evil attacks our city, Melbourne stands together,” he tweeted. “Once again Victorians are in awe of our extraordinary police officers, who responded to swiftly, bravely and professionally this afternoon, and the passers-by whose first instinct was to go to the aid of others.”

Melburnians must refuse to be cowed by the terror attack and instead carry on as normal over the weekend, the chief commissioner concluded.

Extra police officers will be on duty at major public events including football matches and Remembrance Day commemorations but there was “no ongoing threat we are currently aware of”.