Victoria Police chief commissioner Graham Ashton alleged those detained planned to attack high-profile locations including Melbourne's iconic train station, Federation Square and St Paul's Cathedral.
"Over the last fortnight... We have had to conduct a criminal investigation relating to the formation of what we believe was a terrorist plot," he told a press conference .
"We believe that there was an intention to conduct what we call a multi-mode attack, possibly on Christmas Day.
Of the seven arrested today morning, five remain in custody.
Ashton said four of them were Australian-born, of Lebanese background, with the fifth an Egyptian-born Australian citizen, all in their 20s.
"Certainly these are self-radicalised, we believe, but inspired by ISIS and ISIS propaganda," he added.
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