Victoria Police said one person died at the scene and two people have been taken to hospital.
The suspect has been arrested and is in hospital in a critical condition, under police guard.
An unverified picture from the scene.
"The police officers are OK ... The investigation is ongoing and we are keeping an open mind," Victoria Police said at a press conference.
Police are not looking for anyone further at this early stage.
The bomb squad is at the scene.
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