Ibrahim Abbas had planned to run at Australians "slicing their necks" and "chopping to kill" as they celebrated Christmas in Melbourne's Federation Square, a terror trial has heard.

Abbas told police his goal was to "cause as much chaos, destruction, fear, bloodshed" as possible, believing it was "fine" for him to kill Australians because Australia supported the fight against Islamic State which had killed innocent Muslims.

Despite admitting his plan to police and pleading guilty in the Supreme Court, Abbas now claims much of his plot was made up on the spot and the details were "hugely exaggerated."

Chilling details of the plot were revealed in court on Tuesday as he gave evidence against his younger brother Hamza Abbas, 23, cousin Abdullah Chaarani, 27, and Ahmed Mohamed, 25, who are accused of conspiring to prepare an attack on revellers on Christmas Day 2016.

"I was gonna run at them, slice their necks," he said in his police interview played to the court.

He talked of "chopping to kill" people with a machete and a backup suicide vest "so if police subdue me, I at least have that chance to take someone with me".

He even sniggered during the interview as he was shown footage of himself and the accused trio at Federation Square on an alleged reconnaissance mission.

But Abbas backed away from his confession on Tuesday afternoon.

"Some things were hugely exaggerated," the 24-year-old told the court.

"I made it up on the spot when I was talking to the interviewers ... I was trying to scare the interviewers."

Chaarani was aware of his ideas for two years and Mohamed for a month, he said.

When the day came he would bring his brother Hamza and "I would put a vest on him", he said.

Abbas admitted he had an idea about using a machete, but claimed his plan to run down a police officer, attack people and then detonate a vest "was something I made up on the spot".

Talk of a bomb was "an exaggeration and it's a lie", he said before admitting he had wanted to make a bomb as a demonstration to convince the trio to join his "team".

He maintained he was "guilty of wanting to do an attack and for trying to prepare a team to join me in an attack".

He also said he pleaded guilty so he could get a reduction in his sentence.

Abbas said at the time he confessed he had been awake for 30 hours, "brutally bashed" by police when he was arrested and couldn't really distinguish between reality and what was in his mind.

The jury also heard covert recordings of the men in a prison cell on Christmas Day, when Abbas recounted what he told police in his confession, including claims "I was the one trying to pump you guys up as much as I can".

"I told them it was all me and how it fits me," Abbas was recorded saying.

Hamza Abbas, Chaarani and Mohamed deny conspiring with Ibrahim Abbas to prepare an attack.

The trial continues.