Two brothers, a 30-year-old from Dallas, a 26-year-old from Campbellfield and a 21-year-old man from Greenvale were arrested during dawn raids at their homes in the city's northwest on Tuesday involving more than 200 police.
The Greenvale man will face Melbourne Magistrates Court on Tuesday afternoon charged with one count of acting in preparation for, or planning of terrorist acts.
Victoria Police Chief Commissioner Graham Ashton said the trio had been under investigation since March and become "much more energised" in the past week about activating the plot quickly.
"We didn't have a precise time and a precise location," Mr Ashton told reporters in Melbourne of the planned attack.
"They were looking at a place of mass gathering.
"There was a view towards a crowded place, a place where maximum people would be attending, to be able, to kill, we allege, a maximum amount of people as possible.
"I believe, over more recent days, attempts have been made to source a 0.22 semi-automatic rifle to assist with the carrying out of that terrorism event."
Mr Ashton said the accused were using encrypted communications and police acted when they had gathered enough evidence.
All three are Australians of Turkish background and had their passports cancelled by federal agencies in January, March and October.
Police are seen at a house at Coolaroo Melbourne, Tuesday, November 20, 2018,preparations for a terrorist act in Melbourne. Source: AAP
Two of the men have no criminal history while the third was picked up in 2007 for the minor offence of failing to display L plates.
Authorities said the men were influenced by ISIS to carry out the plot.
AFP Assistant Commissioner Ian McCartney said the arrests were an excellent result".
"If we had not acted early in preventing this attack, we will allege the consequences would have been chilling with the potential, as the commissioner stated, the potential for significant potential loss of human life," he said.
Police say the three men arrested were involved in "undertaking preparations for planning a terrorist act".
They are expected to appear in court later on Tuesday.
The properties were raided under a joint counter-terrorism operation involving Victorian and Australian Federal Police and ASIO.
A fourth property was raided in Coolaroo.
The operation is ongoing and the Dallas property, with a smashed front window, remained under heavy police guard.
Four properties were raided in Melbourne's north west in a counter-terrorism operation Tuesday morning. Source: sbs news
Authorities say there is no ongoing threat.
Premier Daniel Andrews said the plot could have been "potentially deadly" had police and agencies not intervened.
"On behalf of all Victorians, I want to thank every member involved, many hundreds of officers who have put themselves in harm's way to keep all of us safe. The seriousness of this potential incident should not be underestimated. We are very grateful, all of us, as Victorians for the work that has been done."
