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The two police officers who bravely challenged knife-wielding Bourke Street terrorist Hassan Khalif Shire Ali were both rookie members of the force.

Hassan Khalif Shire Ali, 30, crashed his car on the busy shopping street before setting it on fire, knifing bystanders - one fatally - and slashing at the two officers who tried to stop him at around 4.20pm on Friday.

One of the officers eventually shot him in the chest, and he died of his wounds in Royal Melbourne Hospital.

It has now emerged the officer who fired the bullet had only graduated from police academy three months ago. 

At a press conference on Saturday morning Victoria Police Chief Commissioner Graham Ashton said both members were 'reasonably new'.

He said: 'The member that fired was only three months out of the academy and has family members in the Victorian police force.'

The chief commissioner also praised his officers composure in the situation.

The two police officers who bravely challenged knife-wielding Bourke Street terrorist Hassan Khalif Shire Ali were both rookie members of the force 

He said: 'I continue to be proud of all our members' efforts. They had seconds to react and they did so very bravely.'

Chief Commissioner Ashton defended accusations his officers had taken too long to subdue the assailant.

A witness who came out of KFC to see the commotion told ABC after the attack it looked 'like police officers didn't know how to handle the situation'.

Video shot from the scene showed the frenzied attack that carried on for more than a minute, beginning with Khalif charging at two police officers, punching one through a vehicle window and lunging at them with a knife.

Khalif chased the officers around a tree as they tried to avoid his blows and convince him to surrender.

A brave bystander also tried to stop the attack by running him down with a shopping trolley. 

The knife-wielding Somalian terrorist (left) crashed his car on the busy shopping street before setting it on fire, knifing bystanders - one fatally - and slashing at the two officers who tried to stop him at around 4.20pm on Friday

The officers retreated to the other side of the road as the bearded attacker, who had a shaved head and was dressed in a long brown tunic, pursued them.

Horrified bystanders begged police to shoot him.

Khalif again attempted to stab and slash at the officers several times before one policeman tried to taser him unsuccessfully. 

His partner then shot the assailant in the chest.

The knifeman clutched his chest and and fell to the ground where he was quickly arrested by two plain-clothed officers. He rushed to hospital under police guard, where he later died on the operating table.

 Witnesses said the Holden Rodeo hit a pedestrian as it mounted the kerb and burst into flames outside Target near the Swanson Street intersection about 4.20pm on Friday, before the stabbing rampage began

Meanwhile, it has emerged Khalif was known to Australian counter-terror agencies and had links to north African extremist groups.

He had his passport was cancelled in 2015 after he was flagged as one of 300 potential security risks.

The Australian Federal Police (AFP) confirmed it was taken off him after it was decided by intelligence officers he planned to travel to Syria.