A gunman who took a woman hostage and is suspected of killing another man called up a TV newsroom during the siege to claim: ‘This is for IS, this is for al-Qaeda’.

‘Severe gunfire’ rang out inside ‘The Buckingham’ serviced apartments on Bay Street, in the affluent east Melbourne suburb of Brighton, shortly after 6pm on Monday.

The hostage situation came to an end after the gunman stepped out of a hotel room and fired at officers – injuring three – before himself being killed in the exchange.

But moments before police shot the man dead, he called Channel 7’s newsroom to claim he was carrying out a terrorist attack on behalf of Islamic State and al-Qaeda.

As he made the chilling phone call at around 5.41pm, a woman, believed to be the female hostage, was heard screaming desperately in the background.

The gunman responsible for the act was reportedly well known to counter terrorism police in Victoria, with investigations ongoing about the link of terror to the attack.

‘Terrorism is one line of inquiry,’ Victoria police deputy commissioner Andrew Crisp said.

‘We’re extremely concerned about terrorism, we’re very attuned to the threat of terrorism here in Melbourne.’

The man found dead at the scene and the female hostage were both employees of ‘The Buckingham’, but police are not yet sure if there is any relationship between them and the gunman.

While the gunman’s identity is yet to released, they have confirmed the phone call to Channel Seven came from a mobile belonging to him.

The call was reportedly fielded by Nicole Bland, Channel Seven’s Chief of Staff, and left her ‘chilled to the bone’ by the conversation.

Paul Dowsley, a Channel Seven journalist at the scene, said Ms Bland described the man’s voice as ‘very firm and the woman in the background was clearly distressed’.

At 9pm a member of Victoria Police bomb squad entered the apartment blocks dressed in full protective wear and green head gear.

‘He has to make sure the building is safe before forensics can enter,’ a police source said at the scene.

More than an hour before the siege was brought to an end, residents reported that a ‘loud explosion’ had rattled the entire building at 4.30pm.

A police spokesperson said they believe the ‘bang’ reported was gunfire and not an explosion. However the bomb disposal is reportedly in attendance at the scene.

When police arrived at the scene they discovered a man’s body lying on the floor of the foyer, while another man was reportedly holding a woman hostage inside.

Residents in the area were forced to run for their lives to a nearby Coles supermarket as the volley of 30 to 40 shots rang out.

Jack Reid, who was standing down the road from the serviced apartments when the gunfire rang out, said he and his friends ran for their lives.

‘I was standing on the corner across the road,’ he told The Age.

‘I saw police pull out their guns, I heard about three dozen gun shots.

‘I got really scared and ran across the road. Police were telling everybody to get into the Coles supermarket so me and mates just ran.’

Witnesses say that shortly after the explosion at 4.30pm which ‘rattled the whole building’, they saw undercover police jumping out of a car and running up the road.

‘Undercover police got out, put vests on and went running up the street,’ a witness who gave her name as Caroline told radio station 3AW.

As the exchange of gunfire between police and the gunman broke out, Sky News journalist Ahron Young was doing a live cross to TV.

While describing the scene unfolding around him, a volley of gunfire rang out live on air around ‘The Buckingham’ serviced apartments.

‘I’m right now hearing gunfire, oh my god, police are calling for us to get back… we’re all running away from here,’ he said.

‘We’ve just been told to get back to Coles because of this scene unfolding. There were probably 30 to 40 rounds of gunfire.’

Young did not stop his broadcast at any point but sounded out of breath from running away from the scene and shaken by the events.

‘We’re now safely inside Coles…’ he said before turning to his camera crew.

Young then returned to addressing Sky anchor Sam Maiden: ‘It just came out of the blue, Sam, as I was talking to you, those rounds of gunfire, police shouting at everyone to get back.’

‘There’s probably 30 or 40 people who are still outside who are now being pushed across the road. We’ve probably run 50 metres away from where we were.’

Victoria Police released a statement confirming an incident and saying roads in the area would be closed for a period of time.

‘Police are currently at an apartment building on Bay Street, Brighton after reports of an explosion just after 4pm,’ the statement read.

‘At this early stage it is unclear what has taken place and police and specialist units are currently investigating.

‘Roads in the surrounding area will be closed for some time. We do not have any further information at this stage.’