A man has been arrested after setting a car on fire and stabbing three people - one fatally - in central Melbourne, Australia.

The attacker was shot by police after confronting officers on a busy city street, authorities said. He was taken into custody in a critical condition.

The two survivors were taken to hospital - one in a suspected critical condition.

Police said they were "not looking for anyone further at this early stage".

It was too early to say if the incident was terror-related, they said.

Footage from the scene showed police confronting the man on Bourke Street -- Photo: EPA

Officers were initially called to reports of a car fire near Bourke Street, a busy thoroughfare, at about 16:20 local time (05:20 GMT).

"As they got out of the car, they were confronted by a male brandishing a knife and threatening them," Supt David Clayton said in a news conference.

"At the same time, passers-by were calling out that members of the public had been stabbed."

Police said the scene had been cordoned off, and it was being "made safe" by a bomb response unit.

Footage circulating on social media shows a vehicle, which appears to have crashed into shop fronts, on fire.

Bourke street is one of Melbourne's busiest streets, in the heart of its business district -- Photo: TWITTER/CHRISMACHERAS

The police and State Premier Daniel Andrews asked people to avoid the area.

The incident comes as a man is on trial for a 2017 attack on the same street which left six people dead.

James Gargasoulas is accused of deliberately driving his car into pedestrians on Bourke Street, hitting 33 people.

His defence barrister has said he was in a drug-induced psychosis at the time.

Source: BBC