On Friday afternoon, 31-year-old Mohamed Khalif pulled up in his four-wheel-drive, which caught fire.
Khalif stabbed three men, with a man in his 60s dying at the scene and two others recovering in Royal Melbourne Hospital.
Police and civilians tried to subdue Khalif before police shot him in the chest. He died in hospital.
Chief Commissioner Graham Ashton said on Saturday the Somalian-born Khalif, also known as Hassan Shire, was the brother of a man arrested by police late last year in relation to committing acts in preparation for a terrorist attack.
Speaking on the Today Show , he said Khalif's car contained gas cylinders and it is believed he intended to cause an explosion.
Police are confident the event was a terrorist attack, which Islamic State has claimed responsibility for.
"It looks like he's attempted to ignite a fire in the car, we believe at this stage with a view to igniting those canisters with some sort of explosion, but that didn't eventuate," Commissioner Ashton said.
Khalif was known to police and federal intelligence authority ASIO.
"But he wasn't someone we were actively monitoring to that level."
When asked if police should have shot Khalif in the leg rather than the chest, Commissioner Ashton said police were trained to kill if they believed their life or a member of the public's life was at risk.
"We don't train people to wound people with firearms. You're trained to shoot to kill, not to shoot to wound."
Police worked through the night and don't believe there are any ongoing threats to the public, he said.
Commissioner Ashton also says there was no suggestion that Khalif was inspired by James "Dimitrious" Gargasoulas, who is currently on trial facing six charges of murder after allegedly mowing down pedestrians in January 2017.
Islamic State has claimed responsibility for the attack.
Commissioner Ashton said Khalif had a criminal history for cannabis use, theft and driving offences.
The bomb squad was called after the barbecue-style gas cylinders were found in the vehicle.
A 26-year-old man and a 58-year-old, said to be Tasmanian businessman Rod Patterson, were taken to hospital with what police said were non-life threatening injuries following the attack.
BYSTANDERS YELLED 'JUST SHOOT HIM'
Authorities say Australia's vigilance has helped to foil at least a dozen plots, including a plan to attack downtown Melbourne at Christmas in 2016.
Prime Minister Scott Morrison said in a statement released on Twitter: "Australia will never be intimidated by these appalling attacks."
Video posted to social media showed chaotic scenes as bystanders scattered while the attacker fought with police and his victims lay bleeding on the footpath.
One man charged at the tall attacker, who was wearing a long black shirt, with a shopping trolley just before police drew their weapons.
A witness, Markel Villasin, told Australian Broadcasting Corporation radio: "Bystanders were yelling out 'just shoot him, just shoot him'."
Victorian Premier Daniel Andrews said the attack was "an evil, terrifying thing that's happened in our city".
Warning text messages were sent after the attack and police sealed off the downtown area, usually busy with shoppers and diners on a Friday evening. Some cordons were lifted later, though the immediate crime scene would be sealed until Saturday, police said.
Memories remain fresh of a fatal but not terror-related attack on the same street last year, in which a man drove his car at pedestrians at high speed, killing six people and wounding about 30. That prompted the city to install hundreds of security bollards. The driver is on trial.
In December 2014, two hostages were killed during a 17-hour siege by a "lone wolf" gunman, inspired by Islamic State militants, in a cafe in Sydney.
- AAP and Reuters
