Terrorist Yacqub Khayre used a sawn-off shotgun to kill a man after struggling church-going dad George Matte-Hado sold the weapon to a middle man to help with his mortgage.

Father-of-two Matte-Hado, 37, is accused of illegally selling the double-barrelled shotgun to the middle man in the car park of a Melbourne housing estate for $2000 on May 19.

Khayre would later use the gun to shoot dead hotel clerk Kai Hao and injure three police officers during a dramatic siege in Brighton on June 5.

Matte-Hado faced the Melbourne Magistrates' Court on Monday accused of selling the "sawed-off, over-under" shotgun at Greenvale Gardens housing estate.

"The shotgun was wrapped in mechanics' rags," Australian Federal Police agent Sherief Maksoud told the bail hearing.

Matte-Hado put about $800 of the proceeds towards his mortgage, while $300 was spent on "speed" and the rest went to bills.

After the Brighton siege, the Greenvale man searched the internet for "weapon used in Melbourne terrorism incident", the court heard.

"He realised the shotgun used in the incident was the one he sold," Mr Maksoud said.

Defence lawyer Joseph Burk said Matte-Hado's parents were Iraqi Christians who suffered persecution and came to Australia in 1992 to make a better life for their children.

"He's essentially the last sort of person who would be involved in terrorism," Mr Burk said.

"There is a great deal of remorse here. He has not tried to hide anything."

But Matte-Hado was denied bail after police opposed it, citing the serious allegations and the risk of reoffending.

His younger sister spoke at the bail hearing, saying Matte-Hado had a "beautiful relationship" with his wife and two daughters, and the family regularly attended a Catholic church.

"He's a very good father. He has a very solid work history," she said.

Matte-Hado is facing six charges, including two counts of unlicensed dealing of firearms. It's alleged he also dealt an air rifle.

Three other men have also been charged with supplying weapons to Khayre, whose phone and laptop were analysed after the attack.

Police found coded text messages that referred to guns as "bicycles" and ammunition as "the things that go in and come out".

Khayre had two shotguns with him during the siege but used the one Matte-Hado sold to kill Mr Hao and injure three Special Operations Group officers.

He died in a hail of police bullets at Buckingham Serviced Apartments.

Matte-Hado and the three other alleged gun dealers will all return to court on July 25.

AAP

Latest From 7News