'How was he on parole?': Turnbull's fury over why Melbourne siege gunman was on our streets

An outraged Prime Minister Malcolm Turnbull said Australia needs to fix its parole board issues after a recently released prisoner was involved in fatal shooting and siege despite having a "long record of violence".

Mr Turnbull was speaking on an ongoing terrorism investigation sparked by a siege in Melbourne's southeast on Monday night that he called a "shocking, cowardly crime".

An incredulous Mr Turnbull said the siege that ended with the deaths of two people and three injured police officers underscored the ongoing terrorist threat facing Australia.

"It is a terrorist attack, and it underlines the need for us to be constantly vigilant, never to be deterred, always to fight in the faced of Islamist terrorism," he said.

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The dead gunman was Yacqub Khayre, 29, a criminal with a violent record and noted links and tendencies toward extremism.

Khayre shot dead a building receptionist and declared his allegiance to terror groups before later turning a shotgun on police officers who were forced to return fire.

"How was this man on parole?" Mr Turnbull thundered at a press conference on Tuesday.

"He had a long record of violence. A very long record of violence.

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"He had been charged with a terrorist offence some years ago and had been acquitted.

"He was known to have connections, at least in the past, with violent extremism. But he was a known, violent offender. How was he on parole?"

Victoria Police Chief Commissioner Graham Ashton said a joint counter-terrorism taskforce was handling the overall investigation.

With investigations continuing, the commissioner said there was nothing at this stage to suggest Khayre's actions were linked to any ongoing threats.

Comm Ashton said Khayre was "someone that was known to us and has a strong criminal history".

He added Khayre came out of the apartment "with a shotgun and has commenced firing at police", wounding three officers.

Police returned fire, killing the gunman.