A man was shot dead on Monday by Australian police who ended a hostage crisis at an apartment in south eastern suburb of Melbourne where a woman was held captive and a body of another man was found.
Police say the gunman, who was out on parole at the time, had reportedly taken a woman hostage before shooting three officers following a two-hour standoff.
Khayre shot dead a China-born clerk working at an apartment building yesterday and took a female escort hostage.
One police officer was shot in the neck and ear and two officers suffered wounds to their hands, but none of the wounds was life-threatening, Ashton said.
Islamic State said via its news agency, Amaq, that the attack was launched because of Australia's membership in a US-led coalition against the militant group.
Australian Prime Minister Malcolm Turnbull said the police were treating the siege as a "terrorist attack". "It is a terrorist attack and it underlines the need for us to be constantly vigilant", he said.
A hostage situation that turned deadly in Melbourne is now being investigated as a terror attack, Australian police told NBC News, and authorities are trying to figure out if the attacker worked alone.
He was believed to have been on parole when the hostage drama unfolded on Monday night, and was seen as a low-risk person of interest by anti-terror police, according to The Herald Sun.
Victorian Premier Daniel Andrews promised to look at every part of the parole system, but said it had already worked to keep Khayre in jail longer than his minimum sentence.
Khayre was released on parole late a year ago after serving time for intent to cause injury and arson, which Turnbull said was a concern given his background and something that would be reviewed.
Crisp said police had not confirmed the identity of the gunman, and he would not elaborate on the phone call to Seven.
ISIS has claimed responsibility for the attack which left one man dead, as well as the attacker, and several others injured in the suburb of Brighton. "He was an employee of the serviced apartments, so he appears to have been in the wrong place at, unluckily, the wrong time".
Islamic State's media arm has this morning released a statement claiming Khayre, who is reported to have been involved in a failed plot to attack an Australian military base, was "a soldier of ISIS".
Mr Ashton said Khayre had been linked to the Holsworthy army barracks terror plot in 2009.
The prime minister questioned why Khayre was not behind bars, calling it "a shocking cowardly crime".
"Subsequently he (Khayre) came out of the apartment with a shotgun and commenced to fire at police at the entryway to the apartments", Ashton said. Three people were convicted of conspiracy for that plot, which police thwarted before it could be executed.