A man who reportedly made threats against Australian Prime Minister Tony Abbott was shot dead by police on Tuesday night in Melbourne, according to police.

Victoria police and Australian Federal Police told media on the incident at midnight that a 18-year-old man was shot dead by Melbourne police outside the police station of Endeavour Hills on Heatherton Road in southeastern of Melbourne at around 7:45 p.m. local time.

The man shot dead was under terrorism investigation and had his passport canceled recently. He was called to the police station for an interview as a part of investigation "of his own free will" and an altercation occurred between the dead and two police officers.

Two police officers from joint counter terrorism task force were stabbed by knife, one is from The Australian Federal Police ( AFP) while the other is a Victoria police, both are in stable condition after being rushed to hospital.

The teenager was then shot by an officer.

"It's absolutely clear to us that our members had no choice other than to act in the way in which they did," Victoria Police Assistant Commissioner Luke Cornelius told reporters on the scene.

"It appears this individual was acting on his own and was not acting in concert with other individuals," Cornelius added.

Local media reports suggested that the man shot dead was allegedly made threats against Prime Minister Tony Abbott.

AFP Commander Bruce Giles said while addressing media that there is intelligence to suggest the dead man had been waving an Islamic State flag.

Australian authorities launched a series of raids in Sydney and Brisbane on Thursday which has been described as the nation's largest counter-terrorism operation.

Abbott had confirmed on Friday that there is an intercepted chatter indicating a potential attack on Parliament House and himself, saying the federal police has taken control of the security at the building.

The capital Canberra is on red alert after the revelation and armed AFP officers can be seen patrolling outside Parliament House.