AAP/Julian Smith/via REUTERS A police officer stands guard outside the Buckingham Serviced Apartments in Brighton in Melbourne, Australia, June 6, 2017 after police on Monday shot dead Yacqub Khayre after he held a woman hostage.
"We are treating it as an act of terrorism", Victoria state police Commissioner Graham Ashton said on Tuesday.
"We believe this person was there with those sorts of intentions, albeit we don't know whether it was something planned or something spontaneous at this stage".
Mr Andrews said Khayre was eligible for parole at a later point than he might have hoped because of violent behaviour in prison.
He had been recently released on parole.
"He has recently done some jail time, he got out late past year and has been on parole at the time of this offending last night", he said.
"We are extremely concerned about terrorism".
"Subsequently he (Khayre) came out of the apartment with a shotgun and commenced to fire at police at the entry-way to the apartments..."
It is alleged 29-year-old Yacqub Khayre, linked to a 2009 terror plot targeting an Australian army barracks, had first murdered a Chinese-born Australian man working as a receptionist in the foyer.More news: Social media posts shed light on James Hodgkinson
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One police officer was shot in the neck and ear and two officers suffered wounds to their hands, but none of the wounds were life-threatening, Ashton said.
A second man had earlier been found dead from a gunshot wound, they said.
Islamic State has claimed responsibility for Monday's incident, but Mr Ashton downplayed their statement.
Through its Amaq News Agency, the worldwide terror group, Islamic State, identified the gunman as one of its fighters. He was recognised as a refugee under Australia's humanitarian migration program and later became an Australian citizen, police said. "This is for al-Qaeda", shortly before the shoot-out.
BREAKING: Hostage situation unfolding in Brighton, heavily armed police surrounded an apartment building.
Ashton also downplayed any link to the recent Manchester and London terror attacks.
Neither group have yet claimed responsibility for the incident.
He had called a female escort and arranged to meet with her at the said location.
Seven news director Simon Pristel said when they asked for more information from the caller, he hung up.
"He is someone certainly known to us from his background but certainly as of yesterday there wasn't anything that we had that suggested that he was planning on embarking on this, that this was anything more than a spontaneous act".