A mass shooting on New Year's Eve at Melbourne's Federation Square is what police allege a 20 year old man was planning.
Victoria Police Deputy Commissioner Shane Patton says the suspect was being watched closely.
"The male is one of our high-risk persons of interest. We have been monitoring him for a very lengthy period of time. He's an Australian citizen and he is of Somalian parents. The allegations are that he was planning to commit a terrorist act and that he attempted to obtain a gun to do so. What we will be alleging is that he was intending to use a firearm to shoot and kill as many people as he could in Federation Square area on New Year's Eve. "
The suspect was arrested after raids at his family home in suburban Werribee, at a relative's house at Meadow Heights and at a small computer company in Footscray where the man had a part-time job.
Deputy Commissioner Patton says police intend to charge the man with a series a series of terrorism-related charges, including collecting documents to facilitate the attack.
"He's accessed documents produced by al-Qaeda Arabian Peninsula which is a guide book in respect to how to commit a terrorist act and also how to use firearms, guns and handguns and rifles."
Police say they decided to make the arrest because the man had been having face-to-face meetings about getting a gun.
"This male did not access a firearm. I think it is very important that I provide that reassurance to the public. He has been subject to our active investigation and at no stage did he access a firearm, albeit that was his intention to do so."
Australian Federal Police (AFP) Acting Deputy Commissioner Ian McCartney says police around Australia are working hard to stop terrorism plots.
"Since September 2014 when the national threat terrorism level was raised to 'probable' the AFP has been working with its state and territory partners and so far we have charged 74 people as a result of 347 counter-terrorist investigations. It is an important point to make that. As people continue to make their plans over the Christmas and New Year's Eve period. The aim of terrorism is to foster fear and intimidation, but it is not about the results we have given today and the results of this investigation."
