A plot to attack high-profile locations in Melbourne with a series of bombs on Christmas Day has been foiled, Australian police have said.

Seven people - all Australian citizens in their 20s - were arrested during raids at properties in the city over the alleged plot.

Australian Federal Police Commissioner Andrew Colvin said there had been a "significant disruption of what we would describe as an imminent terrorist event".

Victoria Police Chief Commissioner Graham Ashton said the plot had been "inspired by ISIS (Islamic State) and ISIS propaganda" and had been removed "in its entirety".

It was targeting prominent sites in Australia's second largest city, including Federation Square, Flinders Street Station, a trendy bar and restaurant precinct, and St Paul's Cathedral, "possibly on Christmas Day", Mr Ashton added.


He said it was likely the attacks would have involved the use of explosives, and either guns or knives.

"Certainly (there was the) potential," he said, "for quite a number of people to be injured or killed in this attack."

Image: Flinders Street Station was also thought to be a target

Three of the seven people initially arrested in the raids - two men, aged 26 and 21, and a 20-year-old woman - have been released without charge.

The other four - all men aged between 21 and 26 - are being held in connection with the alleged plot.

Three of them - Hamza Abbas, 21, Ahmed Mohamed, 24, and Abdullah Chaarani, 26 - have been charged with preparing or planning a terrorist attack. The trio appeared in court on Friday and were remanded in custody.

Image: Two women stand with an officer blocking a road where a home was being searched

A fourth man - a 22-year-old who has not been named - was later charged with the same offence and will appear in court on Saturday.

The suspects had been under close surveillance for a fortnight.

Earlier Mr Ashton said one of the suspected plotters in custody was an Egyptian-born Australian and the others were all Australian-born of Lebanese descent.

Image: Police said Melbourne's St Paul's Cathedral was one of the targets

About 400 police officers and members of Australia's domestic spy agency were involved in the security operation which resulted in the arrests.

There will be extra officers on patrol on Christmas Day and at the annual cricket Test on Boxing Day.

Anglican Archbishop Philip Freer said Christmas Eve and Christmas Day services would be "unaffected by these things".

Image: Andrew Colvin (L) and Malcolm Turnbull (R) at the news conference about the plot

Australian Prime Minister Malcolm Turnbull told reporters that the "Islamist terrorist plot" was "one of the most substantial terrorist plots that have been disrupted over the last several years".

He added: "We will continue to go about our lives as we always have.

"What these criminals seek to do is to kill. But they also seek to frighten us, to cow us into abandoning our Australian way of life."