Three men arrested on suspicion of plotting a terror attack in Melbourne had tried to source a semi-automatic rifle to kill as many people as possible in a crowded space, police will allege.

Key points: The men all had their passports cancelled earlier this year

The men all had their passports cancelled earlier this year They had become "more energised" in the past week, police said

They had become "more energised" in the past week, police said Authorities said there was no ongoing threat

The men, who are from the city's northern suburbs, had been under surveillance since March, police said.

They said the men — brothers Ertunc and Samed Eriklioglu, aged 30 and 26, and 21-year-old Hanifi Halis — were inspired by the Islamic State (IS) terror group.

The three men made a brief appearance in the Melbourne Magistrates' Court on Tuesday afternoon, charged with preparing for an act of terrorism.

The court heard the case against the men will rely on 17,000 intercepted telephone calls and more than 10,000 text messages.

They will return to court in April.

Hanifi Halis, 21, and two others have been charged with preparing for an act of terrorism. ( ABC News )

The men were arrested in pre-dawn counterterrorism raids after police became concerned their activities "escalated" this week, Victoria Police Chief Commissioner Graham Ashton said.

Mr Ashton said the men had not decided on a specific location.

"There was a view towards a crowded place where maximum people would be attending to be able to kill, we allege, a maximum amount of people as possible," he said.

"[They were] certainly inspired by ISIS, we know that."

One of the properties raided by police is in Dallas, in Melbourne's north. ( ABC News: James Oaten )

The raids involved more than 200 officers from Victoria Police, the Australian Federal Police (AFP) and ASIO.

Mr Ashton declined to name the men, but said all three were Australian nationals whose passports were cancelled this year.

One of the men's passports was cancelled in January, another in March and the third last month, he said.

"All three people are Australian nationals of Turkish background," Mr Ashton said.

A fourth property was searched at Coolaroo.

Ertunc Eriklioglu is escorted from the Australian Federal Police headquarters in Melbourne. ( AAP Image/Julian Smith )

Trio 'energised' in past week

Mr Ashton said the men had made attempts in the past few days to obtain a 0.22 semi-automatic rifle to carry out the attack, but would not confirm if attempts were made to obtain more than one rifle.

He said police believed the men had become "more energised" in the past week, following increased publicity about terrorism in Melbourne.

"We had the Bourke Street [car attack] trial on as well so there was certainly a lot of public awareness around mass casualties and terrorism over recent times," Mr Ashton said.

"I don't know whether that's played a role or not."

Sorry, this video has expired AFP Assistant Commissioner Ian McCartney said the plot could have caused "significant loss of life"

He said two of the men had no criminal history, while one had a minor record for failing to display L plates in 2007.

"Other than that there's no criminal history or background, certainly no bail or anything like that applying in this case," he said.

Mr Ashton said the trio's use of encrypted communications made it difficult for police and intelligence agencies to track their activities.

Home Affairs Minister Peter Dutton has been pushing for new laws to make it easier for authorities to access messages sent through encrypted messaging apps.

"We have a bill before the parliament that provides the appropriate safety mechanisms, privacy protections in place, but it allows police and ASIO to do their jobs in relation to these terrorist investigations," he said on Tuesday.

The Assistant Commissioner of Victoria Police's Counter Terrorism Command, Ross Guenther, said the proposed changes would make an "enormous difference" to terrorism investigators.

"The likes of Telegram and WhatsApp are very commonly used as a mechanism of communication between plotters," he told ABC Radio Melbourne.

"Accessibility to that type of information is going to allow us to disrupt at a much earlier time.

"Some of these investigations we undertake for 18 months and two years, and that's because it takes us so long to get in front of them in terms of understanding how they communicate."

Consequences could have been 'chilling'

AFP Assistant Commissioner Ian McCartney said, if found guilty, the men could face life in prison.

"We'll allege the consequences would have been chilling, with … a potential significant loss of human life," Assistant Commissioner McCartney said.

He said the men's passports were cancelled because of concerns they intended to travel to a "conflict zone".

Police officers leave a house in Coolaroo, one of four northern suburbs properties raided this morning. ( AAP: David Crossling )

"At the time the decision was made, the concern was that they would travel offshore and may be involved in terrorist activity offshore," Assistant Commissioner McCartney said.

He said it was important to note that authorities did not believe the men were directed by ISIS.

"It's an attack that's been inspired by ISIS, driven by the propaganda machine, and unfortunately people are still listening to that propaganda machine."

Assistant Commissioner Guenther said when radicalised people had their passports cancelled, they often turned their attention to organising attacks in their home country.

"When people are prevented from travelling or it's difficult to get to the conflict zone, often the view will be, 'Well I'll change tack and commit an act in the country [in] which I live'. We've seen that all over the world," Assistant Commissioner Guenther said.

'They don't like Islamic State'

Armagan Eriklioglu, who said he was the father of the older men, said his sons were neither violent nor inspired by IS.

"They don't even know how to use a weapon, they didn't even go to the army," he told reporters outside the family home in Campbellfield, where he said the younger son still lived.

Armagan Eriklioglu said his Campbellfield home was damaged in the police raid. ( ABC News: James Oaten )

"They are very polite. They're not violent. They're not aggressive.

"They are just praying the same as me … They don't like Islamic State.

"No way, not planning an attack, no way … No way, not Australia, no way."

He said the house had been raided at 3:00am by police who held him to the ground and pointed guns at him and his wife.

"They really smashed the house

"Even my mum's bungalow is smashed. Very messy. The doors are gone."

He said his sons had known the other man who had been charged for about a year.

In the suburb of Dallas, a neighbour of one of the men said he had stopped praying at the local mosque and avoided catching up for coffee.

"I don't agree with that … we go pray not for any group, not for anyone, we [are] praying only to the one god," Zubair Mohammad said.

"I tell him then: 'What you guys [are] doing is wrong, there is a mosque close by, we go pray in the mosque'.

"It is strange to me, the way they act to me, the way they talk to me [was] a bit strange."

Zubair Mohammad said he had noticed three men meeting at his neighbour's house. ( ABC News: James Oaten )

Mr Mohammad said he had noticed three men meeting at the house.

He said his neighbour had been unemployed after breaking both his hands in a fall from a ladder while he was working as a painter.

Premier Daniel Andrews said the arrests confirmed Victorians were well served by police and intelligence agencies who had "put themselves in harm's way to keep all of us safe".

State Opposition Leader Matthew Guy said he did not want to "play politics" over the arrests.

"I'll simply say that we believe we can strengthen our counter-terrorism laws," he said.

An earlier statement released by Victoria Police said there was no "ongoing threat" to the public linked to Tuesday's arrests.

Police are urging the public to go about their normal business and report any suspicious activity to triple zero, or the National Security Hotline on 1800 123 400.

Assistant Commissioner McCartney said 90 people had been charged in relation to 40 counterterrorism investigations across Australia since September 2014, when the national threat level was raised.

The raids came on the same morning as thousands of people attended a state funeral for restaurateur Sisto Malaspina, who was stabbed by an Islamic State-inspired attacker in Melbourne's Bourke Street on November 9.

Earlier this month, three men were found guilty of plotting to carry out a terror attack in Melbourne's CBD during the 2016 Christmas period.