Officers were confronted near the burning auto by a man "brandishing a knife and threatening them" while passersby called out that people had been stabbed, Victoria state police Supt.
The man shot by police after he stabbed three people in Melbourne's Bourke Street has died in hospital.
Victoria Police confirmed they were not looking for any further suspects, and said there were no known links to terrorism at this stage of investigations.
It is understood the man stopped his auto on Bourke Street, not far from the Target store, and set it alight.
Mr Hair said two civilians became involved as well as two police, trying to stop the man from his attack.
Ashton didn't give the Somali attacker's name, but said the man had "family associations that are well known to us".
Another of the victims has reportedly died in hospital care, while a third is fighting for life. The police have also ruled out terrorism links.
"Passers-by were calling out that members of the public had been stabbed", Supt Clayton said.
The street where the auto caught fire is the same one when in January 2017 a fatal but not terror-related incident when a man plowed his vehicle in to pedestrians at a high speed, killing six people and woulding about 30. He was then shot by police.
"The exact circumstances are yet to be determined".
The message over the loudspeakers says: "This is Victoria Police, please evacuate the area".
More than 100 police have swarmed on the area.
Police work at the crime scene following a stabbing incident in Melbourne.
He has been taken to hospital in a critical condition. The man follows with the trolley and pushes it towards the attacker again, as a police officer opens fire.
"Then I heard a loud bang and someone said they could see someone doing chest compressions on someone as an ambulance started coming up the street as well".