Australian law enforcement has arrested three men in morning raids on Tuesday, who are accused of planning a mass-shooting style terror attack in the city of Melbourne.

Police allege that the trio, aged between 20 and 30 years old, were attempting to source a semi-automatic rifle with the aim of killing as many people as possible.

Victoria Police Chief Commissioner Graham Ashton told reporters that the group had been under surveillance since March but had recently become "much more energized" in their bid to carry out an attack.

"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," Ashton said.

"We didn't have a precise time and a precise location -- 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."

Authorities say that the men were influenced by ISIS and do not have a criminal history.

The group used encrypted communications and police say they acted when they had gathered sufficient evidence.

The arrests come less than two weeks after a man was shot dead during a "terrorist incident" in central Melbourne, in which he ignited a vehicle and attacked police and passers-by with a knife.

The three men are in custody and are expected to face court later on Tuesday.