Melbourne Xmas bomb attack foiled

Angus Livingston
AAP

The plot for a "substantial" and unprecedented Christmas Day terrorist attack on three major Melbourne landmarks, including a church, involved explosives and weapons.

Heavily armed police in riot gear raided properties across Melbourne's north on Friday and arrested seven people, with five accused still in custody to face court later in the day.

Chief Commissioner Graham Ashton alleges the arrested men planned "a substantial attack" on Flinders Street Station, Federation Square and St Paul's Cathedral.

They were "self-radicalised" and inspired by Islamic State and the extremist terror group's propaganda.

"Certainly (there was) potential for quite a number of people to be injured or killed in this attack," Mr Ashton said.

Australian Federal Police commissioner Andrew Colvin said the plot concerned him "more than any other event that I've seen".

St Paul's and images of Melbourne's CBD featured in an Islamic State propaganda video in November.

Prime Minister Malcolm Turnbull condemned the plot, said Australians should not be cowed and highlighted Australia's "successful" multicultural society.

"We congregate in public places for Christmas, for New Year's Eve. It is a time of happiness and joy. These terrorists sought to disrupt it. They have been thwarted," he told reporters in Sydney.

Five people in their 20s are due to face court. Four are Australian-born men of Lebanese ethnicity while the fifth is an Egyptian-born Australian citizen.

Police found evidence of an explosive device in the raids at Flemington, Dallas, Gladstone Park, Meadow Heights and Campbellfield.

Mr Ashton says the plan was for "a multi-mode attack" including an explosion and assaults with weapons.

"We gathered the makings of an improvised explosive device," he said.

"A substantial number of people could have been injured in the attack from what we've seen."

Police haven't said how or where device could have been set off.

About 400 officers were involved in the raids.

Premier Daniel Andrews has promised extra police on Victoria's streets on Christmas Day to reassure the public.

"What was being planned was not an act of faith, was not an act of religious observance, it was instead in its planning, an act of evil, a criminal act," he said.

Police on Friday cordoned off a quiet Meadow Heights street as they continued to sift through a property connected to the raids.

Uniformed and plainclothes officers had been coming in and out of the suburban home since Thursday night.

Resident Mustafa Yalcin told AAP he noticed the police in his street about 11.30pm.

Mr Yalcin has lived there for 25 years and says it's usually quiet.

"It's scary," he said.

Federal Opposition Leader Bill Shorten said Victorians should go about their normal business.

Christmas services will run as scheduled at St Paul's, with extra security. Train services will continue at Flinders Street Station and Federation Square will be open as usual.