Khayre had previously been acquitted of planning a suicide attack on army base

Islamic State has claimed responsibility for the Melbourne hostage attack on Monday that was carried out by a Somalian-born refugee who had previously faced court over terror charges.

Yacqub Khayre murdered one man, wounded three police officers and took a woman hostage in a dramatic two-hour siege in a hotel on Bay Street, Brighton.

IS blamed the attack on Australia's membership in the US-led coalition against the militant group.

'The attack in Melbourne, Australia was carried out by a soldier of the Islamic State in response to the call for targeting the subjects of the coalition states,' the group's Amaq news agency said.

Khayre, 29, was killed by police in an exchange of 'severe gunfire' shortly before 6pm, ending the hostage situation inside 'The Buckingham' serviced apartments.

It has been revealed that Khayre was previously charged, and acquitted, with planning a suicide attack against Sydney's Holsworthy army barracks in 2009, the Herald Sun reports.

But despite being well known to counter terrorism police, he was deemed a low-risk of offending and released on parole - before committing the attack: 'For IS and for al-Qaeda'.

Scroll down for video

Yacqub Khayre (pictured) has been named as the attacker behind the 'ISIS-inspired' siege in Brighton, in Melbourne's south-east, which unfolded on Monday afternoon and left a man dead

Khayre was previously charged, and acquitted, with planning a suicide attack against the Holsworthy army barracks in Sydney, in 2009. He was jailed in 2011 for a drug-affected armed robbery

IS blamed the attack on Australia's membership in the US-led coalition against the militant group (pictured is a comment on Twitter in support of the attack)

Khayre murdered one man, wounded three police officers and took a woman hostage in a two-hour siege in a hotel on Bay Street, Brighton, on Monday. An officer can be seen at the gates, moments before the exchange of gunfire (pictured)

Khayre 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' (Specialist counter terrorism police are 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)

Despite claiming to be carrying out the attack for Islamic State and al-Qaeda, Khayre has previously been linked to jihadist sect al-Shabaab.

Among five men charged with planning the terrorist attack on the Holdsworthy army barracks, he was one of only two to be cleared.

That came despite him reportedly travelling to Somalia in 2009 or 2010, where he may have attended 'weapons and military' and visited a cleric to gain approval to carry out the attack.

But after being acquitted of terror charges, he was jailed for three years for carrying out a drug-affected home invasion in Melbourne's north in 2011.

High on meth, Khayre was reportedly armed with a knife when he broke into a house and violently assaulted a young woman and her father.

He fled with Apple electronics, a watch, laptop, jewellery and money.

In 1991, at the age of just three, Khayre and his family fled war torn Somalia, arriving in Australia to live with his uncle and grandfather.

Growing up in Gladstone Park, north Melbourne, he was reportedly a good student at school until his grandfather died in Year 12 and he fell in with the 'wrong crowd'.

From there he began committing petty crime and stole his uncle's car in 2006.

But on Monday, little more than a decade on from his first foray into crime, he killed one man and held a woman against her will in a believed terror related attack.

'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 Khayre stepped out of a hotel room and opened fire at officers - injuring three - before himself being killed in the exchange.

But moments before police shot him 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 Khayre made the chilling phone call at around 5.41pm, a woman, believed to be a female hostage aged in her 20s or 30s, screamed desperately in the background.

His claim: 'This is for IS, this is for al-Qaeda', is eerily similar to that shouted by the terrorists who yelled 'This is for Allah' as they killed seven in the London Bridge attack.

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

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

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

Well known to police in Victoria, he has previously been investigated for terror 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.

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'.

'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 Khayre.

'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 TERRORISED MELBOURNE: 4.30pm Reports of an explosion in a service apartment block in Brighton, in eastern Melbourne 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 Khayre is holding a woman hostage inside the apartments 5.40pm Khayre 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 Khayre, 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

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 and dead man found at the scene were both 'The Buckingham' employees serviced apartments (pictured)

Emergency services surrounded the serviced apartments late into the evening

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.

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.

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

In the moments before police stormed the building and shot him dead, Khayre 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

'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 Khayre broke out, Sky News reporter 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 Khayre 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.'

The Buckingham's self-contained units include European-designed furniture and leather sofa beds, with each one designed to be unique

The gunman's two victims worked in the apartment block - a woman aged in her 20s who was held hostage and a man who was found shot dead in the foyer

'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.'

The Buckingham serviced apartments where Khayre was holed up on Monday offers one and two bedroom apartments for $130 to $230 a night.

Its self-contained units include European-designed furniture and leather sofa beds, with each one designed to be unique.

Many have balconies and all are equipped with free Foxtel access on 42 centimetre flat screen TVs, air conditioning, and kitchens with stainless steel appliances.

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