Police confirmed one person had been killed, while two others were in hospital.
Terrifying footage has emerged of the moment a man lunged at police with a knife in Melbourne's Bourke Street on Friday afternoon.
Police initially responded to reports of a vehicle on fire at the corner of Bourke and Swanston streets.
In a statement police said a man was arrested at the scene and has been taken to hospital in critical condition.
"There's no known link to terrorism at this stage", Clayton said.
One witness said a man was stabbed in the face.
"A second person has been taken to hospital with a head injury. A third person has also been taken to hospital".
Footage has emerged showing the suspect being restrained by two men, at least one of whom is a police officer.
The exact circumstances are yet to be determined at this stage.
Police are asking members of the public to avoid the area.
Police are urging people to avoid Swanston Street and Bourke Street. Large spots of what appears to be blood are near the body alongside a pair of men's black lace-up shoes.
Video taken by witnesses shows a auto on fire in the area and bystanders using a shopping trolley and chair to confront the attacker.
"He seemed to be waving something, people around me screamed that he had a knife, but I couldn't see clearly from where I was", she said.
Photo from the scene showed crowds of people behind police barriers.
Witness Fiona told 3AW her friends had seen someone with a knife in the area and she'd been told he'd stabbed a security guard.
"There was a massive flame and bang, just smoke and lots of people", witness Shelley Reid told Nine News.
A Melbourne-based reporter tweeted that nearby buildings were placed on lockdown by the police following the incident.