IS claims Melbourne attack; PM Turnbull calls it ‘cowardly’

A fatal shootout in Melbourne on Monday was being treated as a terrorist attack after it was claimed by Islamic State, Australian police said today.

Australian Prime Minister Malcolm Turnbull condemned the incident as ''shocking and cowardly''.

He said on Tuesday police were treating the deadly one-man siege in the southern city as an "act of terrorism" after a claim by the Islamic State group that one of its fighters was the gunman responsible.

Police shot dead gunman Yacqub Khayre after he held a woman hostage inside an apartment building in Melbourne, Australia's second-largest city.

The man of Somali background was killed when he opened fire following an hour-long standoff after taking an escort girl hostage at a serviced apartment block in the city on Monday evening.

It is alleged 29-year-old Yacqub Khayre, linked to a 2009 terror plot targeting an Australian army barracks, had first murdered a Chinese-born Australian man working as a receptionist in the foyer.

''This terrorist attack by a known criminal, a man who was only recently released on parole, is a shocking, cowardly crime," Prime Minister Turnbull told reporters in the capital, Canberra.

"It is a terrorist attack and it underlines the need for us to be constantly vigilant, never to be deterred, always defiant, in the face of Islamist terrorism," he said.

Victoria state Police Commissioner Graham Ashton said police were still investigating after Islamic State claimed responsibility for the attack via its Amaq news agency.

"We're aware of them having claimed responsibility, but then they always tend to jump up and claim responsibility every time something happens so we note that that has happened," he said.

''We're not seeing anything indicating that he's got some message from overseas to do this at all but, again, early days. We've got material that's seized. We'll go through that and work it out.

''We don't yet know if this was something he was really planning or whether it was just an ad hoc decision that he's made just to go off tap like this.''

Amaq said the attack was launched because of Australia's membership in a US-led coalition fighting against the militant Islamist group in Syria and Iraq.

Police said the attacker made statements ''around al Qaeda'' and called a local television station making similar comments, reportedly: ''This is for IS, this is for al Qaeda''.

''The executor of the Melbourne attack in Australia is a soldier of the Islamic State and he carried out the attack in response to appeals to target citizens of coalition states,'' Amaz said.

Affluent suburb
Authorities had responded to reports of an explosion at the building - which turned out to be a gunshot - in the affluent beach suburb of Brighton and arrived to find a dead body in the foyer.

''Subsequently he (Khayre) came out of the apartment with a shotgun and commenced to fire at police at the entry-way to the apartments...'' Ashton said.

''He's exchanged gunfire with police and has been fatally shot by police at the scene.''

The escort escaped unharmed but three police were hurt in the firefight, although their injuries were not life-threatening.

Prime Minister Malcolm Turnbull said the attack underlined the need to be constantly vigilant.

''This terrorist attack by a known criminal, a man who was only recently released on parole, is a shocking, cowardly crime,'' he said.

''It is a terrorist attack and it underlines the need for us to be constantly vigilant, never to be deterred, always defiant, in the face of Islamist terrorism.''

Khayre was released on parole late last year after serving time for intent to cause injury and arson, which Turnbull said was a concern given his background and something that would be reviewed.