Melbourne police foil Christmas Day 'terror attack' plot

Melbourne police say they have "neutralised" a terror threat in Melbourne likely planned for Christmas Day.

Seven people were arrested after raids at a number of properties in Melbourne's northwestern suburbs on Friday morning. Five of them remain in custody.

Chief Commissioner Graham Ashton says police believe the men were "self-radicalised but certainly inspired by ISIS and ISIS propaganda".

Four of the five men in custody were Australian-born while the fifth was an Egyptian-born Australian citizen.

It is understood the plot planned to target Melbourne's Flinders Street Station and Federation Square on Christmas Day.

Mr Ashton says it is likely the attack would have involved explosives.

"We believe it was certainly going to involve an explosive event… There has also been some evidence around the possibility of the intention to use other weapons - that could include knives and/or firearms.

"As a result of this investigation we believe we have neutralised the terrorist plot. In relation to that threat we believe that there was an intention to conduct what we call a multi-mode attack, possibly on Christmas Day," Mr Ashton says.

Victoria Premier Daniel Andrews says there will be a hightened police presence on Melbourne's streets on Christmas Day to ensure people feel safe.

"[These alleged attacks] were not acts of faith - they were in their planning, acts of evil," he says.

In total, around 400 members of the police force were involved in the operation.

The investigation was a number of weeks long, however overnight the counter-terrorism team went into an "overt phase", conducting five separate search warrants.