"Police initially responded to a report of a vehicle on fire. a man was arrested at the scene and has been taken to hospital under police guard in a critical condition", Victoria state police said in a statement.
The officers were seen trying for at least a minute to detain the man peaceably as his attacks on them continued before one office shot him with a weapon. The suspect was shot in the chest by police, Clayton said.
Police shot the man in the chest and he is now in critical condition in hospital.
No other suspects are being sought.
They say there is no known link to terrorism at this stage but are "keeping an open mind".
The incident took place in Melbourne's Central Business District on Friday afternoon when people would have been leaving work.
Witnesses say they saw the man drive a truck into the Target centre and as the auto caught fire he tried to fight and stab police and bystanders.
Twitter user Meegan May wrote: "Guy seems to have set his auto on fire, then attacked police with a knife".
A courageous passer-by used a trolley in an attempt to stop a man who attacked police on Bourke Street in Melbourne.
The Friday incident took place blocks away from Flinders Street Railway Station, where a driver plowed into pedestrians a year ago, injuring 18.
The buildings surrounding the incident were put into lockdown, and police blocked off sections of Bourke and Swanston streets.
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A man was arrested at the scene and has been taken to hospital under police guard in a critical condition.
A auto is on fire as police confront the man in Bourke Street, Melbourne, on Friday afternoon.
Officers said they "are not looking for anyone further at this early stage".
He said another person died at the scene and two others are still being treated.
"There's been an incident in the CBD near Bourke St", he tweeted.
"He seemed to be waving something, people around me screamed that he had a knife, but I couldn't see clearly from where I was", a witness told ABC News.
'Police response was swift and overwhelming.
"I really wanted to help but I was in shock, I didn't know what to do".
"And then I heard one loud bang".
Police are asking members of the public to avoid the area.
James Gargasoulas is accused of deliberately crashing into pedestrians, killing six and injuring 27 others.