A gunman who took a woman hostage and is suspected of killing another man called up a TV newsroom during the siege to claim: 'This is for IS, this is for al-Qaeda'.

And it has now been revealed that the man who carried out Monday's attack was out on parole, having been rated a low-risk of reoffending by counter terrorism police.

'Severe gunfire' rang out inside 'The Buckingham' serviced apartments on Bay Street, in the affluent east Melbourne suburb of Brighton, shortly after 6pm on Monday.

The hostage situation came to an end after the gunman stepped out of a hotel room and fired at officers - injuring three - before himself being killed in the exchange.

But moments before police shot the man dead, he called Channel 7's newsroom to claim he was carrying out a terrorist attack on behalf of Islamic State and al-Qaeda.

As he made the chilling phone call at around 5.41pm, a woman, believed to be the female hostage, was heard screaming desperately in the background.

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A siege in Brighton, Melbourne has ended with police killing a man in a volley of gunfire. The gunman had earlier taken a female hostage inside The Buckingham serviced apartment block. An officer can be seen at the gates, moments before the exchange of gunfire (pictured)

The gunman reportedly stepped out of an apartment and opened fire on police, wounding three officers before being shot dead himself. His female hostage escaped uninjured

At 5.40pm, some 20 minutes before he died, the gunman called up a TV newsroom to claim: 'This is for IS, this is for al-Qaeda' (pictured)

The siege lasted more than an hour-and-a-half inside 'The Buckingham' serviced apartments on the corner of the Nepean Hwy and Bay St in Brighton, in south-east Melbourne (pictured)

Monday's incident began with locals reporting an 'explosion' inside the serviced apartments. Police believe this was the sounds of the gunman shooting dead his first victim

The expert bomb disposal teams entered 'The Buckingham' before 9pm to deal with a package inside

The gunman responsible for the act was well known to terror police in Victoria, with investigations ongoing about the link of terror to the attack.

'Terrorism is one line of inquiry,' Victoria police deputy commissioner Andrew Crisp said.

'We're extremely concerned about terrorism... we're very attuned to the threat of terrorism here in Melbourne.'

Mr Crisp said when police arrived at the serviced apartments not long after 4:00pm they found a man dead on the floor of the foyer.

'A short time later a phone call was made to triple-zero by a female stating there was a hostage situation and a deceased male,' he said.

The female hostage and man found dead were both employees of 'The Buckingham', but police are not clear if there is any relationship between them and the gunman.

While the gunman's identity is yet to be released, they have confirmed the phone call to Channel Seven came from a mobile belonging to him.

'That's all part of the investigation... we will certainly be working with Channel 7 in relation to that phone call,' Mr Crisp said.

HOW AN 'ISIS-INSPIRED' GUNMAN BROUGH TERROR TO MELBOURNE: 4.30pm Reports of an explosion in a service apartment block in Brighton, in Melbourne's eastern suburbs Police enter 'The Buckingham' to find a man's dead body on the foyer floor The building is placed into lockdown and the area outside is cordoned off 5pm Specialist police units can be seen outside 'The Buckingham' The Nepean Highway and Bay Streets are closed, disrupting peak hour traffic It is revealed a gunman is holding a woman hostage inside the apartments 5.40pm The gunman calls Channel Seven newsroom and claims 'This is for IS, this is for al-Qaeda' 6pm 'Severe gunfire' is heard ringing out from inside the apartment block Police exchange up to 40 shots with the gunman, killing him in the process He had reportedly stepped out of an apartment and began firing at police, leading to them returning fire Terrified residents in the area forced to run for their lives into a nearby Coles supermarket 8pm Police confirm they are looking into terror links to the attack Advertisement

The woman who was being held hostage made an emergency call to Triple Zero to advise them of the situation. She escaped unscathed and was taken by paramedics (pictured) to hospital

Heavily armed police swarmed the Brighton area as the hostage situation unfolded and were still present in the area as the night progressed

A bomb squad member suits up before entering the serviced apartment blocks to search for any explosives

A police spokesperson said they believe the 'bang' first reported was gunfire and not an explosion. However the bomb disposal is reportedly in attendance at the scene.

The bomb squad were called in 'to make sure the building is safe before forensics enter,' a police source said at the scene

The female hostage were both employees of 'The Buckingham' serviced apartments (pictured)

The call was reportedly fielded by Nicole Bland, Channel Seven's Chief of Staff, and left her 'chilled to the bone' by the conversation.

Paul Dowsley, a Channel Seven journalist at the scene, said Ms Bland described the man's voice as 'very firm and the woman in the background was clearly distressed'.

At 9pm a member of Victoria Police bomb squad entered the apartment blocks dressed in full protective wear and green head gear.

'He has to make sure the building is safe before forensics can enter,' a police source said at the scene.

More than an hour before the siege was brought to an end, residents reported that a 'loud explosion' had rattled the entire building at 4.30pm.

A police spokesperson said they believe the 'bang' first reported was gunfire and not an explosion.

As the exchange of gunfire rang out, residents in the area were forced to run for their lives to a nearby Coles supermarket as the volley of 30 to 40 shots rang out.

Police are not yet sure if there is any relationship between the two victims and the gunman

In the moments before police stormed the building and shot him dead, the man called Channel 7's newsroom to claim he was carrying out the attack on behalf of Islamic State and al-Qaeda

A police spokesperson said they believe the 'bang' reported was gunfire and not an explosion

Forensic police are understood to currently be inside The Buckingham service apartments

When police arrived at the scene they discovered a man's body lying on the floor of the foyer, while another man was reportedly holding a woman hostage inside

Jack Reid, who was standing down the road from the serviced apartments when the gunfire rang out, said he and his friends ran for their lives.

'I was standing on the corner across the road,' he told The Age.

'I saw police pull out their guns, I heard about three dozen gun shots.

'I got really scared and ran across the road. Police were telling everybody to get into the Coles supermarket so me and mates just ran.'

Witnesses say that shortly after the explosion at 4.30pm which 'rattled the whole building', they saw undercover police jumping out of a car and running up the road.

'Undercover police got out, put vests on and went running up the street,' a witness who gave her name as Caroline told radio station 3AW.

As the exchange of gunfire between police and the gunman broke out, Sky News journalist Ahron Young was doing a live cross to TV.

While describing the scene unfolding around him, a volley of gunfire rang out live on air around 'The Buckingham' serviced apartments.

Sky News reporter Ahron Young was forced to run for his life after police and a gunman fired on each other in a suburban street in Melbourne during a hostage crisis

Residents in the area were forced to run for their lives to a nearby Coles supermarket as the volley of 30 to 40 shots rang out (pictured)

'I'm right now hearing gunfire, oh my god, police are calling for us to get back... we're all running away from here,' he said.

'We've just been told to get back to Coles because of this scene unfolding. There were probably 30 to 40 rounds of gunfire.'

Young did not stop his broadcast at any point but sounded out of breath from running away from the scene and shaken by the events.

'We're now safely inside Coles...' he said before turning to his camera crew.

Young then returned to addressing Sky anchor Sam Maiden: 'It just came out of the blue, Sam, as I was talking to you, those rounds of gunfire, police shouting at everyone to get back.'

'There's probably 30 or 40 people who are still outside who are now being pushed across the road. We've probably run 50 metres away from where we were.'

Roads in the area were closed for a period of time after reports of the first explosion, causing chaos for peak hour traffic.