ISIS Claims Responsibility For Attack Near Melbourne, Australia

Australia's prime minister says he will discuss with state leaders changing state laws so that risky criminals are not released from prison early on parole.

29-year-old Somali-born Australian Yacub Khayre was shot and killed by police after he killed a man and took a woman hostage in an apartment block.

Malcolm Turnbull says there will be serious discussions with the states at COAG about parole decisions for people on terror watchlists.

Police on June 5, 2017, shot dead Yacqub Khayre (pic) after he held a woman hostage inside an apartment building in Melbourne.

They say they have prevented 12 attacks on home soil since the threat level was raised in September 2014, including a foiled Christmas Day plot in Melbourne a year ago, with more than 60 people charged.

A hostage situation that turned deadly in Melbourne is now being investigated as a terror attack, Australian police told NBC News, and authorities are trying to figure out if the attacker worked alone.

When Khayre met up with the woman, he killed an employee of the apartments; and then "held the woman hostage for several hours before he burst out of the building and engaged police in a firefight, during which he was killed".

While police commissioner Graham Ashton said Khayre's actions were being treated as a terror-related, he said the incident is "the sort of thing" ISIS would jump up and claim responsibility for it.

Claiming responsibility for the attack via its Amaq news agency, the militant group said the attack was in retaliation for Australia's involvement in the US-led coalition fighting the militants in Iraq and Syria.

He had called a female escort and arranged to meet with her at the said location.

The violent criminal was on parole and it's understood he was part of an official deradicalisation program, run by the Islamic Council of Victoria.

Khayre spoke about al-Qaida in phone calls to police and to Seven Network television, and Ashton said the gunman may have plotted to lure police into an ambush.

Police are yet to confirm Mr Hao's identity, but Deputy Commissioner Shane Patton said the man was recently married and a father. The woman was rescued unhurt but three police officers received non-life threatening gunshot wounds.

He called police to say he had a hostage in an apartment in the building and made threats to her if police intervened.

He further added: "Certainly we don't yet know what caused him to go off like he has last night with undertaking the acts that he has".

"What is clear here is that we face a growing threat from Islamist terrorism in Australia, in our region and around the world".

"He was known to us but there is nothing to suggest there was any indication yesterday was imminent", Mr Ashton said.

Mr Ashton confirmed police had begun a terrorism investigation after Khayre made comments referencing so-called Islamic State and al-Qaeda.