On Friday afternoon, 31-year-old Mohamed Khalif pulled up in his four-wheel-drive, which caught fire.
One person died at the scene and two others were being treated for their injuries.
After the explosion, the man used a large knife to attack shoppers, injuring 3 of them. He died in hospital.
It is not yet clear whether he deliberately set the vehicle on fire but Mr Ashton said it had been laden with gas cylinders.
The overwhelming majority of attacks IS claims are undertaken by men acting in its name but who have no operational links to the group.
"We are now treating this as a terrorism event", said Ashton, adding that the suspect is "someone that is known to us".
(9News) There is a heavy police presence at both homes.
Yet, he wasn't being actively monitored.
"We also take this opportunity to thank those very fearless and dedicated members of Victoria Police who did all of us proud in their very quick response in very unsafe circumstances", Andrews said. "You're trained to shoot to kill, not to shoot to wound".
The perpetrator, Hassan Khalif Shire Ali, 30, had his passport cancelled in 2015 after it was learned that he planned to travel to Syria, police said.
Disney-Owned Streaming Service Hulu Is Coming To Canada
Diego Luna will reprise his Star Wars role as Cassian Andor in that takes place before the events of Rogue One: A Star Wars Story. Being that this is a prequel to the movie, I doubt Felicity Jones makes an appearance, but it's Star Wars , so you never know.
In 2017, another deadly incident occured on the same street after James Gargasoulas drove his vehicle into pedestrians, killing six.
However, blowhard ISIS propagandists frequently claim responsibility for attacks they have nothing to do with.
Ashton said Shire Ali had a criminal history for cannabis use, theft and driving offences. "The area has been cordoned off and the public are urged to avoid the area".
Bystanders spotted a auto on fire on Bourke Street Mall, between Swanston and Russell Streets, outside the Target store. "Australians will never be intimidated by these appalling attacks".
A handful of videos and images uploaded to social media appear to show the man attempting to stab police before he is shot.
A witness, Markel Villasin, told Australian Broadcasting Corporation radio: "Bystanders were yelling out "just shoot him, just shoot him".
Victoria state Premier Daniel Andrews says the attack was "an evil and terrifying thing that has happened in our city and state today".
Video posted to Twitter and broadcast on television showed a man repeatedly swinging an object at two police officers in the downtown area of the city.
James Gargasoulas is accused of deliberately driving his auto into pedestrians on Bourke Street, hitting 33 people. The City of Melbourne is in the process of installing bollards to block traffic access to pedestrian malls. The driver is on trial.
Two hostages were killed during the 17-hour Sydney cafe siege by a "lone wolf" gunman who was inspired by ISIS militants.