Police are investigating whether a man who shot another man dead and took a female escort hostage in Melbourne overnight staged the siege to lure counter-terror officers to the Brighton address.

The armed hostage-taker has been identified by the police as Yacqub Khayre. Photo / AAP
The armed hostage-taker has been identified by the police as Yacqub Khayre. Photo / AAP

Counter-terror officers surrounded the Bay Street apartment building on Tuesday night where the armed man, Yacqub Khayre, 29, was holding a woman against her will after gunning down a receptionist at the entrance of the serviced apartments.

Victoria Police Commissioner Graham Ashton said police had received a call "from someone claiming to have a hostage in an apartment" at the address and "making threats to the hostage if police intervened".

As tactical officers and specially trained counter-terror cops surrounded the address, Mr Ashton said police were made aware of a call made to Channel 7 making claims around that the gunman was "doing it for ISIS".

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After holding the woman hostage for some time, Khayre burst from the apartment, and opened fire at officers sparking a gunfight.

"There was something yelled," Mr Ashton said on Tuesday morning. "He's then burst out of the apartment with the firearm firing ... and we've engaged him in a gunfight at that point.
"He's come out firing at police and we've fired back."

Khayre was shot and killed by police after his shots had hit three officers. Two were treated in hospital and one at the scene for their gunshot wounds, but all three are stable.

Though the woman, who Khayre had lured to the address by booking her services through an escort agency, was threatened and held against her will, Mr Ashton said police were investigating the possibility that the gunman's real target was the police he shot at.

"It's a possibility," he said when asked at a media conference on Tuesday morning.
"We still don't' know exactly whether that was the case, certainly a booking was made to see an escort at the premises, he's then turned up at the premises with a firearm."

Mr Ashton said the possibility of luring police had "certainly been weighted into the calculations".

Bomb squad police are seen in Bay Street in Brighton in Melbourne. Photo / AAP
Bomb squad police are seen in Bay Street in Brighton in Melbourne. Photo / AAP

"We haven't found anything like a note or any comment around that in what we've found so far," he said.

"It's early days, there's search warrants being done, we've got computers and electrical items seized to go through.

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"It's too early to know how random this was in terms of whether it was something that he was planning or thinking about, whether police were the target or he's seized the opportunity he thought was presented to him last evening."

Police are currently executing search warrants at Khayre's Roxburgh address where he lived with his mother, and forensic officers remain at the crime scene.

It has been confirmed that the siege is being treated as a terror incident.

Police collecting evidence on Tuesday, which included a brown paper bag marked as containing a hardcover book in Arabic.
Police collecting evidence on Tuesday, which included a brown paper bag marked as containing a hardcover book in Arabic.

Mr Ashton said counter terrorism were investigating the matter, and confirmed Khayre was known to police through a long criminal history including being charged and later acquitted for a terror plot that targeted Australian defence personnel in Sydney in 2009.

Khayre had been released from prison last year, where he served time for non-terror related violent offences, and was on parole at the time of yesterday's siege.

Victorian Premier Daniel Andrews said had been compliant with his parole conditions.

Mr Ashton said there was "nothing to suggest" that Khayre had been planning an attack.

"We believe at this stage with the information we have he was acting alone and there wasn't any sort of ongoing threat in relation to any plot or anything around this individual," he said.