The Islamic State-inspired terrorist who carried out yesterday's fatal stabbing in Bourke Street was "not mentally fit", according to a sheikh from his local mosque.

Key points: Three people were stabbed in the attack; one died on the scene and two are in hospital

Three people were stabbed in the attack; one died on the scene and two are in hospital Properties in Werribee and Meadow Heights have been raided by police

Properties in Werribee and Meadow Heights have been raided by police Authorities said there would be an increased police presence around the Melbourne CBD

Australian Federal Police (AFP) confirmed on Saturday Hassan Khalif Shire Ali was known to hold radical views, but was not actively monitored and was assessed as not posing a threat to the community.

The AFP also revealed Shire Ali had his passport cancelled in 2015 over fears he planned to travel to Syria.

The revelations came as Victoria Police raided properties in Werribee and Meadow Heights in Melbourne's west and north following yesterday's attack in the CBD, in which Shire Ali was shot dead after taking the life of another man.

Police raided a home in Werribee this morning. ( AAP: James Ross )

The Somali-born Shire Ali, 30, crashed his vehicle loaded with gas bottles in the Melbourne CBD and stabbed three people before he was shot by police and died in hospital.

If you or anyone you know needs help: Lifeline 13 11 14

Lifeline 13 11 14 GriefLine 1300 845 745

GriefLine 1300 845 745 BeyondBlue 1300 224 636

The ABC understands he is also known as Hassan Ali and Hassan Khalif, and recently moved from his family's Werribee home because of problems with substance abuse.

His family is well-known and respected within the Somali community in the region, and attended the Virgin Mary Mosque in Hoppers Crossing.

It is believed Shire Ali most commonly attended prayer in Melbourne's northern suburbs.

Sheikh Isse Musse, from the Virgin Mary mosque, told the ABC Shire Ali "wasn't mentally fit".

"The family told me three days ago … that [he thought] he was being chased by people with spears," he said.

He said police raided the family home at midnight, and added that the family was distraught.

"This is the moment to grieve, and they have not been allowed to do that."

Attacker had passport cancelled but wasn't deemed a threat

Shire Ali has previously been investigated for his association with others linked to terrorism.

Chief Commissioner Graham Ashton said he believed the suspect moved to Australia from Somalia in the 1990s.

Islamic State (IS) claimed responsibility for the attack and police confirmed this morning that Shire Ali was "inspired" and "radicalised" by IS.

Sorry, this video has expired AFP says Bourke St terror suspect was known to them

"This individual did hold radical views and his passport was cancelled in 2015, when ASIO assessed he planned to travel to Syria," AFP Assistant Commissioner Ian McCartney said.

"He was never a target of the JCTT [Joint Counter-Terrorism Taskforce] in terms of the investigations we undertake.

"The assessment was made that whilst he had radicalised views, he didn't pose a threat to the national security environment.

"Obviously, the circumstances of how and when he moved from having these radicalised view to carrying out this attack yesterday will be a key focus of the investigation we undertake through the JCTT."

Mr Ashton last night confirmed Shire Ali died in hospital.

One man — Sisto Malaspina, the 74-year-old co-owner of the iconic Melbourne restaurant Pellegrini's Espresso Bar — died at the scene after being stabbed.

Pellegrini's Espresso Bar owner Sisto Malaspina died after being stabbed by Hassan Khalif Shire Ali. ( ABC News: Shelley Lloyd )

Fifty-eight-year-old Tasmanian Rod Patterson — described as "the sort of man who would be first to step in and try to help"— is in a stable condition in Royal Melbourne Hospital following surgery for lacerations, as is a 24-year-old Hampton Park man.

Rod Patterson's wife Maree says he is "doing OK given the circumstances". ( Supplied: Facebook )

Toxicology results for Shire Ali are expected in the next few days.

Police courage praised

Sorry, this video has expired Police were confronted by a knife-wielding man after responding to a car fire.

Authorities said there would be an increased police presence around the Melbourne CBD and at major events in the coming days so the public could feel comfortable going about their business, but they did not believe there was an ongoing threat.

Mr Ashton said the Myer department store's Christmas windows opened last night and other key events were being held this weekend, and he said there was "no ongoing threat at the moment".

"We have a number of events going on in Melbourne, Stakes day at Flemington, soccer at AAMI Stadium and also Remembrance Day so we are doing security reassessments in light of those events.

"At this stage we are encouraging people to go to those events and there will be additional police over the weekend."

Police said the constables involved were junior officers, with the constable who fired the fatal shot graduating three months ago.

Authorities said police will be out in force in Melbourne this weekend. ( ABC News: Danielle Bonica )

Victorian Premier Daniel Andrews strongly condemned yesterday's attack and thanked police as well as bystanders who courageously stepped in to try to help.

"This is an evil and terrifying thing that has happened in our city and state today and we condemn it," the Premier said.

Loading

"Victorians can be assured that every member of Victoria Police … are equal to the task and will do everything they can in any circumstance to keep Victorians safe."

Victoria's Opposition Leader Matthew Guy also denounced the attack.

"I'll never accept that violent extremism should be a way of life for a big city like Melbourne," he said.

"All the resources of our state should be directed towards keeping Victorians safe. Victorians would say we do not have to live like this."

Prime Minister Scott Morrison attacked the "radical and dangerous ideology of extremist Islam" that inspired Shire Ali.

"I am the first to protect religious freedom in this country, but that also means I must be the first to call out religious extremism," he said.

"Religious extremism takes many forms around the world and no religion is immune from it. That is the lesson of history and sadly modern history as well.

"But here in Australia, we would be kidding ourselves if we did not call out the fact that the greatest threat of religious extremism in this country is the radical and dangerous ideology of extremist Islam."

Sorry, this video has expired Scott Morrison condemns "violent, extremist Islam"

Mr Morrison said Australia's terror threat level would remain at "probable".

The Prime Minister was briefed by ASIO, the AFP and the Home Affairs Department in Canberra on Saturday.

'Don't let fear dictate'

Road blocks in the area are expected to remain in place until at least mid-morning and members of the public are asked to avoid the area on Bourke Street between Russell and Swanston streets.

Melburnians can expect a heavy police presence in the streets after yesterday's frightening attack. ( Twitter: @_sarah_sarah )

Police have asked the public to submit any images or video footage of the attack to help them with their investigation.

Authorities said it was normal for people to have strong emotional or physical reactions after such a distressing or frightening event, and people should seek help from their doctor or by calling a helpline if they needed support.

Melbourne's Lord Mayor Sally Capp sought to reassure the public and praised the police for their swift response.

"Melburnians should feel reassured of the swift reaction from our police and emergency services who were so quickly, effectively and bravely at the scene dealing with the situation and minimising harm to the public," she said.

"I hope that we can pull together as a community to really support each other."

Trauma specialist Rob Gordon urged the Melbourne community to learn from the incident and be aware of dangers, but to also not let fear dictate.

"We need to understand and become familiar with risks and hazards," Dr Gordon said.

"Unfortunately the present time has got hazards of this sort where people take in to their minds to attack innocent people.

"It's very important to recognise that we live with all sorts of hazards but we do it successfully by being aware and understanding and careful.

"Fear doesn't help you get more prepared — it makes you jump at shadows and then you tend to get overwhelmed or exhausted and then you shut off."