Terror plotters allegedly planned to attack Melbourne's Flinders Street Station and Federation Square on Christmas Day, Victoria Police say.



Heavily armed police raided homes across Melbourne's north this morning and made seven arrests.

Five men between the ages of 21 and 26 remain in custody. Four of them were born in Australia, while a fifth is an Egyptian-born Australian citizen.

A 26-year-old man and 20-year-old woman were released without being charged.

Chief Commissioner Graham Ashton said police believe those arrested planned to attack the iconic train station, Federation Square and St Paul's Cathedral on Christmas Day.

Mr Ashton said police had been watching the alleged plotters for some time, and believed they were preparing a multi-mode attack.



"Over that last fortnight that has accelerated," Mr Ashton told reporters today.



Police believed the threat had been neutralised through the raids, he said.



Premier Daniel Andrews said there will be extra police on the streets on Christmas Day to ensure the public feel safe.



"(These alleged planned attacks) were not acts of faith - they were in their planning, acts of evil," Mr Andrews told reporters.

Mr Ashton said police believe the plotters planned to use an explosion and other weapons in the attack.



"We believe it was certainly going to involve an explosive event," Mr Ashton said.

"These are self-radicalised... (but they were) inspired by ISIS and ISIS propaganda."

