Melbourne shooting treated as terrorist attack

The gunman, Yacqub Khayre, also injured three police officers and took a woman hostage during the siege at an apartment building on Monday night.

Khayre shot dead a China-born clerk working at an apartment building yesterday and took a female escort hostage.

Australian police have said they are treating a deadly shooting and siege in Melbourne as a terrorist incident, after the self-styled Islamic State terrorist group said it was behind the attack.

Khayre, a Somali refugee, was on parole for violent crimes and had previously been acquitted over a terrorist plot against Sydney's Holsworthy army barracks in 2009.

The prime minister described Monday's attack in Melbourne, which left terrorist Yacqub Khayre dead following a shootout with officers, as a shocking and cowardly crime.

Victoria state Police Chief Commissioner Graham Ashton said the gunman appeared to have acted alone and not as part of any ongoing plot or threat.

Police are searching Khayre's mother's home in Roxburgh Park, while the bomb squad is searching the Buckingham Serviced Apartments on Bay St in Brighton.

Victoria Police says hundreds of its officers, as well as federal police, are "making sure everything that's behind this" is going towards finding his motivation.

Police were called to the scene after emergency calls reported loud bangs or explosions, Crisp said, adding no detonations had been confirmed.

"It is clear that this is a real issue where people with known records of violence, including people with known terrorist connections, or at least connections with extremists, have been released on parole".

Prime Minster Malcolm Turnbull said the case raised "grave concerns" about the parole system which he said would be addressed.

He had "a long criminal history" and was on parole after being released from jail on a separate offence past year, Mr Ashton said. The plot was foiled and the Guardian reports Khayre was convicted and later acquitted of involvement in that plot. The woman was rescued, and another man was found dead in the lobby, the police said.

ISIS has since claimed responsibility for the attack, though police say they don't believe that proves the attack was planned in advance.

"We are aware of, online, them having claimed responsibility, but then they always tend to jump up and claim responsibility every time something happens", he said.

"... What is clear here is that we face a growing threat from Islamist terrorism in Australia in our region and around the world".

Mr Turnbull said Australia's official terror threat level would remain at "probable".

But four have gone ahead, including the 17-hour siege at a popular Sydney cafe where a gunman killed one hostage in December 2014.

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