MELBOURNE - A man deliberately drove into pedestrians, killing three and injuring at least 20 in the centre of Australia's second-largest city Melbourne on Friday (Jan 20), but police said the lunch-time incident was not terror-related.

"A male deliberately drove into pedestrians in the Bourke Street mall, and we currently have three deceased and at least 20 injuries," Victoria Police acting commander Stuart Bateson told reporters. "We have the offender in custody. There is no further threat to the public at this stage. I can also confirm that this is not a CT (counter-terrorism)-related incident."

Speaking at a press conference on the incident, Victoria police Commissioner Graham Ashton said the offender was a man long known to them for violent behaviour towards his family, drug and mental problems.

The man was involved in a stabbing overnight involving his brother. On Friday, police looking for him in relation to that caught up with him driving erratically and gave chase in Melbourne's south western suburbs.

The chase was abandoned as per police policy when a chase may be dangerous in itself and the car was under surveillance by a police helicopter instead as police regrouped and planned their next means of stopping him.

A woman known to have initially been in the car left the car sometime en route and was being interviewed by police.

The car, meanwhile, reached Flinders St station in the city's central business district and proceeded to do "wheelies" (circles) in the middle of the crossroad intersection, which was busy with traffic, trams and lunchtime crowds.

As police cars approached and attempted to divert the car the driver drove away up Swantston St then turned into Burke St Mall (closed to all traffic except trams) where there were many pedestrians. He randomly aimed the car at many of them as police chased and fired on him.

The car was finally stopped along the mall and the driver was dragged out by the police with some gunshot injuries. He is now in hospital.

Video footage from a witness showed a maroon-coloured car driving around in circles in an intersection outside Flinders St railway station, with the driver hanging his arm out the window, reported Reuters.

Two people approached the car, apparently trying to stop it. "He was half hanging outside the car... he was just so reckless... he just didn't care," witness Laura Pollson told the Australian Broadcasting Corp.

A shop video showed several people diving into a convenience store as the car sped along the footpath.

Photographs published by local media showed a stationary, badly damaged car with a nearby man in red underwear pinned to the ground by police.

Witness Maria Kitjapanon told Melbourne's Age newspaper that the car was rammed by a police car and that police fired shots into the car before pulling the driver out.

"There were probably 10 police surrounding that guy's car, with guns drawn, and they fired into the car. Then they dragged someone out via the passenger's side, then all 10 of them sat on top of him," she said.

Police have locked down the city and suspended tram services.

Melbourne is currently hosting the Australian Open tennis grand slam and is packed with thousands of extra tourists, only a few blocks from where the incident occurred. Police said the tennis tournament continued to operate as normal.

Australia, a staunch US ally, has been on heightened alert for attacks by home-grown radicals since 2014 and authorities have said they have thwarted a number of plots. There have been several "lone wolf" assaults, including a 2014 cafe siege in Sydney that left two hostages and the gunman dead.