A Somali-born man set fire to a pickup truck laden with gas cylinders in the centre of the Australian city of Melbourne on Friday and stabbed three people, killing one, before he was shot by police in a rampage they called an act of terrorism.

The incident, which brought central Melbourne to a standstill in the late afternoon rush, came after police responded to reports of a burning vehicle. The utility truck carrying barbecue gas cylinders burned on busy Bourke Street as the driver stabbed bystanders and attacked police.

The cylinders did not explode and the fire was put out in 10 minutes, by which point the attack was over.

"We are still trying to piece together whether the vehicle was lit then he got out the car or whether he got out the car and then the vehicle took flame," Victoria Police Commissioner Graham Ashton told reporters.

Video posted to Twitter and broadcast on television showed the man swinging a knife at two police officers, while his truck burned in the background.

One of the officers shot the man, and he collapsed to the ground clutching his chest, the video showed. Other footage

showed two stabbing victims lying on the ground nearby.

No 'ongoing threat,' police commissioner says

The attacker, who police said was 31, died in hospital, as did one of the victims, Ashton said.

"We don't believe there is an ongoing threat at this stage, but certainly we are treating it as a terrorism incident."

Asked about what the attacker had been planning, Ashton referred to the gas cylinders in the car and said: "You could

make certain assumptions from that."

Ashton said security would be boosted at horse races and Remembrance Day memorials over the weekend.