Police responding to reports of an explosion at the apartment block in the suburb of Brighton had earlier found the body of another man in the foyer.

The siege ended when the suspect exited the apartment complex and opened fire. The woman escaped safely but three officers were injured by gunshots. 

Police returned fire and killed the man.

Authorities have yet to determine whether the incident in the affluent beach-side suburb was terrorism-related but Victoria state police said it was one line of inquiry.

"We do have our counter-terrorism command working on it with our crime department investigators," deputy police commissioner Andrew Crisp told reporters Monday night.

"It's early days and it's one line of inquiry."

Australian officials are growing increasingly concerned at the threat of terrorist attacks.

Officials say they have prevented 12 such attacks on home soil since the threat level was raised in September 2014, with 61 people charged.

But 4 have gone ahead, including the murder of a Sydney police employee in 2015 by a 15-year-old boy.

In the latest incident police responded to a phone call to emergency services, advising that a man had been killed and a hostage was being held.

Witnesses recalled a frightening situation with multiple shots fired in the suburb.

"I got told there was an explosion around 4 p.m. I hung around for a while and I heard gunshots, about 10 shots, and we got told it was a hostage situation," local resident Will Reid told the Australian Broadcasting Corporation.

"It was frightening: you wouldn't expect that in Brighton at all."

The injuries to the police officers were not life-threatening. (dmr)

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