Victoria state Police Chief Commissioner Graham Ashton said the suspects had been inspired by the so-called "Islamic State" (IS) and had planned attacks on the city's Flinders Street train station, neighboring Federation Square and St. Paul's Cathedral. Some 400 officers were involved in the operation.

Two - a 26-year-old man and a 20-year-old woman - of seven people arrested in raids on Thursday night and Friday morning in the city were released without being charged, a police statement said.

Five men between ages 21 and 26 remained in custody and at least four of them will likely face court on Friday, the police statement said.

They were not identified but police said four were born in Australia and the fifth was Egyptian-born with Egyptian and Australian citizenship.

"This is a significant disruption of what we would describe as an imminent terrorist event in Melbourne," Australian Federal Police Commissioner Andrew Colvin told reporters in Sydney. "We do believe ... that we have removed this threat in its entirety," Colvin said.

The apparently thwarted attack comes as IS appears to be losing ground in Syria and Iraq and perhaps as a consequence focusing on targets outside of the Middle East, including the recent attack in Berlin that killed 12 people.

Victoria state Premier Daniel Andrews said there would be extra police on the streets of the city on Christmas Day to make the public feel safe.

Under surveillance

Police had been watching the alleged plotters for some time and believed they were preparing to use explosives and other weapons, Ashton said.

"We gathered the makings of an improvised explosive device," Ashton said. He added: "Certainly (there was the) potential for quite a number of people to be injured or killed in this attack."

Ashton described those arrested as "self-radicalized" and inspired by Islamic State propaganda.

Several teenagers have been arrested in Australia in recent years and charged with terror-related offences, including five young men who police alleged were planning an attack at 2015's centenary ANZAC Day commemorations.

A chilling harbinger

In September a magazine for IS supporters called Rumiyah carried an article calling for attacks on some of Australia's most iconic landmarks including the Melbourne cricket ground (MCG) and the Sydney Opera House.

"Light the ground beneath them aflame and scorch them with terror. Kill them on the streets of Brunswick, Broadmeadows, Bankstown, and Bondi. Kill them at the MCG, the SCG, the Opera House, and even in their backyards," the article read.

jbh/jm (AP, Reuters)