Terrorism-related charges against teenager Harun Causevic have been formally dropped at a brief sitting of the Melbourne Magistrates Court.

Key points: Terror charges against Harun Causevic were dropped due to lack of evidence

Terror charges against Harun Causevic were dropped due to lack of evidence Causevic was the first Victorian to be subject to a PDO

Causevic was the first Victorian to be subject to a PDO Lawyer says the handling of his case was an injustice

Lawyer says the handling of his case was an injustice Causevic pleaded guilty to weapons related charges

The 18-year-old has been in custody since April, accused of being part of a plot to drive a car into a police officer, behead them, steal their weapon and launch a public attack at Anzac Day commemorations in Melbourne.

Prosecutors appeared before Magistrate Jelena Popovic informing her the charge has been withdrawn.

The man's lawyer Rob Stary told the court Causevic would plead guilty to three weapons offences, including possessing an AK-47 knife that police found under his bed.

He was also charged over with illegally possessing knuckle dusters, while another knife was found in a car.

The maximum penalty for the weapons charges is two years in jail, but Causevic's lawyers argued he should be given a good behaviour bond.

He was granted bail by the magistrate on the conditions he does not apply for a passport, does not attend any points of international departure and attends two separate counsellors for support.

Causevic, from Hampton Park in Melbourne's outer south-east, was the first Victorian to be held under a preventative detention order (PDO) when he was detained without charge following counter-terrorism raids in April.

Documents released by the Supreme Court in June showed Victoria Police used the PDO to hold Causevic, because of an alleged close association with terrorism suspect Sevdet Besim, and Numan Haider.

Haider was shot dead after attacking police with a knife in 2014.

Besim remains in custody after he was charged with conspiring to commit a terrorist act, and denied bail.

A third teenager, Mehran Azami, was not charged with terrorism-related offences, but remains in custody charged with 19 counts of importing weapons from a Chinese weapons importer.

'A terrible injustice has eventuated here'

Outside court, Mr Stary said the circumstances surrounding Causevic's charges were "disturbing" and the laws had failed.

"Someone who had been monitored for five weeks, authorities knew he was not involved in any of the offending described, and then to be placed as an 18-year-old ... in the most austere prison conditions [in the] major offenders unit," he said.

"We really need to have a hard look at how we deal with these sorts of cases.

"The authorities should have tapped him on the shoulder, spoken to his parents, said something from the outset ... not wait until he's been charged.

"A terrible injustice has eventuated here."

Victoria Police acted 'in interest of public safety'

Victoria Police defended its decision to conduct the raids earlier this year as part of investigations dubbed Operation Rising.

"The AFP and Victoria Police have repeatedly said that the current counter-terrorism environment dictates that police will always act in the interest of ensuring community safety," it said.

"This can mean that overt action can be taken to arrest or charge if police have reasonable grounds to suspect a person is planning an act of terrorism.

"The progression of those charges through court will depend on a later assessment by prosecutors of all the admissible evidence when that has been assembled, based on reasonable prospects of conviction and public interest.

"Police would rather the risk of a prosecution failing than the risk of members of the community being hurt or killed through no overt action.

"The AFP and Victoria Police accept the decision made today and will continue with further enquiries and activities in support of other ongoing criminal prosecutions as part of Operation Rising."

Premier Daniel Andrews earlier said police should not be judged for the case collapsing.

"No-one in my judgment will be detained under a Preventative Detention Order with no evidence and when police get information, when police have a reasonable belief that they need to take steps to keep the community safe, then that's exactly what they do," Mr Andrews told 774 ABC Melbourne.

"Police and their partners have to make very difficult calls. Perhaps things are clearer, perhaps things are easier when you've got the benefit of hindsight.

"Victoria Police, Federal Police and those national agencies are dealing with very real threats and they're doing so in a very professional way."

'Insufficient evidence' to pursue charges, federal prosecutors say

In a statement, the Commonwealth Director of Public Prosecutions said Causevic was no longer facing any federal charges.

"On 20 April 2015, police from the Melbourne joint counter-terrorism team charged Mr Harun Causevic with one count of conspiring to do an act in preparation or planning for a terrorist act, contrary to sections 11.5 and s.101.6 of the criminal code," it said in a statement.

"Following the service of a police brief of evidence, the Commonwealth Director of Public Prosecutions (CDPP) conducted an independent assessment of all available admissible evidence in accordance with the Prosecution Policy of the Commonwealth, and formed the view that there was insufficient evidence to continue the prosecution of Mr Causevic for this offence.

"Accordingly when the matter was before the Melbourne Magistrates Court today, the CDPP discontinued the conspiracy charge brought against Mr Causevic. He is no longer charged with any federal offence.

"The CDPP has determined that there are reasonable prospects of conviction in relation to three summary offences against Mr Causevic contrary to section 5AA of the Controlled Weapons Act 1990 (Vic).

"Because there is a continuing prosecution against Mr Sevdet Besim it is not appropriate for the CDPP to comment any further."