A Somali-born man who stabbed three people, killing one, in a terror incident in central Melbourne on Friday was "inspired" and "radicalized" by Islamic State, Australian Federal Police said Saturday.

Speaking at a press conference in Melbourne, Australian Federal Police Acting Deputy Commissioner Ian McCartney identified the attacker as Hassan Khalid Shire Ali, who moved to Australia from Somalia in the 1990s.

Around 4:20 p.m. Friday, Shire Ali, 30, set his pickup truck on fire at a shopping mall popular with locals and tourists before going on a stabbing rampage. He was shot once by police and later died at hospital.

(Getty/Kyodo)

"I think it is fair to say he was inspired, he was radicalized," McCartney said, adding he did not think Shire Ali had direct contact with the Islamic State terror group.

Islamic State claimed responsibility for the attack in Australia's second-largest city. However, Victoria State Police Commissioner Graham Ashton said state police are unsure how seriously to take the claim at this stage of the investigation.

Federal police confirmed that the attacker's brother was arrested over terrorism offenses in November 2017, and that Shire Ali's passport was cancelled in 2015 when Australia's national spy agency believed he had plans to travel to Syria.

Under Australian counter-terrorism laws, the government may suspend or cancel an individual's passport if they are deemed likely to join conflicts in countries including Syria and Iraq.

Prime Minister Scott Morrison said in a press conference in Sydney that the National Terrorism Threat Level remains at probable, while identifying Islamic extremism as a threat to the country.

"The greatest threat of religious extremism, in this country, is the radical and dangerous ideology of extremist Islam," he said.

Morrison also called on religious leaders to take responsibly to "ensure that these dangerous teachings and ideologies do not take root here."

Police said they do not believe there are other individuals looking to carry out similar attacks, however issued two warrants on Saturday to search homes in the outer suburbs of Melbourne.

Bourke Street Mall, a pedestrian strip and shopping area popular with foreign tourists including Japanese, was previously the scene of car rampage in 2017 that left six people dead.