Their friend and alleged accomplice, 21-year-old Hanifi Halis, was arrested during a simultaneous raid on a Greenvale property and later charged with planning a terrorist act.

A neighbour on Lemonwood Drive in Greenvale said the 21-year-old had changed his appearance in the last year. He had grown a beard and had started wear a thobe, a traditional Islamic robe.

The alleged terror plot was inspired by Islamic State and designed to kill as many as possible in a crowded place in Melbourne, Police Commissioner Graham Ashton said.

Police said the trio - all Australian nationals of Turkish background with little criminal history - had tried to source a semi-automatic rifle in recent weeks and their communications had increased in the wake of the Bourke Street terror attack.

Armagan Eriklioglu told reporters outside his home in Campbellfield in Melbourne's north that his sons were "good men".

He said heavily-armed police had burst into the house about 3am and arrested his son, Samed, 26, before raiding the house.

"They don’t even know how to use a weapon," Mr Eriklioglu said of his sons.

When asked if he feared his sons had been radicalised or influenced by Islamic State, Mr Eriklioglu said: "No, no, they don't like Islamic State."

"They are very quiet, they’re not wild, they’re not aggressive. We haven’t got no weapons, they [police] couldn’t find anything."

He confirmed his sons’ passports had been cancelled but said he did not know why.

Mr Eriklioglu said he had been watching the news of the terror raids unfold on television as police scoured his property and felt compelled to address the media waiting outside.

"I wanted to come out here and say it’s not true," he said. "I don’t know where they [police] got this information from."

Mr Eriklioglu said he often prayed with his older son Ertunc at his house, less than a kilometre away in the neighbouring suburb of Dallas.

But he denied Ertunc had a makeshift mosque at his house, or that he had been radicalised by Isalmic State.

"[He’s] the same as me, I listen to scholars as well," he said.

Ertunc was arrested by police who raided his Dallas house on Tuesday morning.

"My son's children were home at the time," Mr Eriklioglu said.

He said the 21-year-old man arrested in Greenvale was a friend of both his sons.

Mr Eriklioglu claimed police had smashed windows and doors of the house when they stormed in at 3am and pointed guns at the family.

"My mum’s bungalow [out the back] was smashed, very messy, the doors are gone," he said.

"They locked my hands [behind his back] ... my wife she didn’t have [a] scarf, they got her as well."

The alleged plot

Mr Ashton said the plot was inspired by Islamic State and although police have been investigating the men since March last year, their communication increased in the past week following the Bourke Street attack.

In the last few days, they had tried to obtain at least one .22 semi-automatic rifle, police allege.

"It's our view that whilst a specific location was not finalised, 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," Mr Ashton said.

The three men all had their passports cancelled this year in January, March and October because authorities suspected they wanted to travel to a conflict zone.

Two had no criminal history, Mr Ashton said, while the other had one offence of failing to display his L-plates in 2007.

The passport cancellations may have led the men to focus their attention on planning an attack on home soil.

"When people are prevented from travelling or getting to the conflict zone, then often the view will be, 'I'll change tack and I'll commit an act in the country of which I live' and we've seen that al over the world," Victoria Police's counter-terrorism boss Ross Guenther said.

Australian Federal Police Assistant Commissioner Ian McCartney said the suspects had not been directed by IS, but inspired by the organisation, and the consquences of their actions would have been "chilling".

"We're not suggesting this has been directed by ISIS, this has been inspired by ISIS and the propaganda machine," Mr McCartney said.

"If we had not acted earlier in preventing this attack, we allege the consequences could have been chilling."

The group's use of encrypted communication made it difficult for police to decipher when and where the plot was allegedly going to be carried out.

Premier Daniel Andrews called it a "potentially deadly" plot.

"The seriousness of this potential incident, should not be underestimated and we congratulate and we are very grateful, all of us, as Victorians for the work that's being done," he said.

Since the threat level was raised in September 2014, 90 people have been charged in relation to 40 counter-terrorism investigations across the country.

In Victoria, Mr Guenther said four major plots had been foiled since then.

Three men were found guilty earlier this month of plotting a Christmas Day attack in Melbourne. The fourth member of the terror cell and its ringleader, Ibrahim Abbas, pleaded guilty to plotting the attack earlier this year and was sentenced to 24 years in prison.

Eleven days ago, Hassan Khalif Shire Ali drove his ute - laden with gas cylinders - into Bourke Street before stabbing much-loved Pellegrini's restaurateur Sisto Malaspina to death and severely injuring two other men. Shire Ali was shot by police and later died in hospital.

Several hours after Tuesday's raids were carried out, the state funeral for Mr Malaspina was held at St Patrick's Cathedral in East Melbourne.

The Bourke Street terror attack occurred during the highly publicised trial of James Gargasoulas, who was found guilty of mowing-down pedestrians in Bourke Street in January 2017.

At the scene of the raid in Dallas, neighbours were shocked to see police storming the Eriklioglu's family home. 

"It's pretty scary after what happened the week before last in the city ... nobody wants to be around people driving crazy or people doing the wrong thing ... that's why we came to Australia to get away from things like this but it seems to be happening more and more," one neighbour said.

The block of units is less than a kilometre away from the Broadmeadows mosque.