Police have identified attack as a ‘terrorism incident’ after a man stabs three people in Melbourne, before being shot.

Police are treating the knife attack in the Australian city of Melbourne as a terrorist incident, after a man stabbed three people during rush hour.

Victoria Police Chief Commissioner Graham Ashton said the unnamed attacker later died in hospital after he was shot by police and arrested.

One of the victims was also confirmed dead, with the two others injured.

“We don’t believe there is an ongoing threat at this stage, but certainly we are treating it as a terrorism incident,” Ashton told reporters.

He declined to identify the attacker, but said he was Somali with “family associations that are well known to us”.

Police placed part of the city on lockdown after the attacker drove a car laden with gas cylinders which caught fire in the city centre at around 4:20pm local time, as people began to leave work for the weekend.

Video posted to Twitter and broadcast on television showed a man repeatedly swinging an object at two police officers in central Melbourne. One of the officers raises his weapon, a shot is heard and the man falls to the ground clutching his chest.

Bourke Street: A man has reportedly been shot by police after setting his car on fire this afternoon. Melbourne’s CBD is currently in lock down between Elizabeth Street and Russell Street and police are urging people to avoid the area. Latest on 7 News at 6.00pm #7News pic.twitter.com/kRP18q56UH — 7NEWS Melbourne (@7NewsMelbourne) November 9, 2018

Police warned people to avoid the area, but said they “are not looking for anyone further at this early stage.”

“The exact circumstances are yet to be determined at this stage. The area has been cordoned off,” the police earlier said.

Al Jazeera’s Andrew Thomas, reporting from Sydney, said there have been a number of attacks in Australia that at the time of the incidents “were thought to be” related to “terrorism”.

“[But] then, when the background of the person has been looked into, they’ve had mental health issues and no association with any known groups.”

He added that the police do not believe this is part of anything bigger, but they will remain cautious.

The Islamic State of Iraq and the Levant (ISIL, also known as ISIS) group said, via its Amaq website, that one of its “fighters“ carried out the stabbings on Friday. It did not provide any evidence to support its claim, nor did it name the attacker.

The street where the attack took place was also the scene of a fatal incident in January 2017, when a man drove his car at pedestrians at high speed, killing six people and wounding about 30.