None of the cylinders exploded and firefighters were able to put out the blaze within 10 minutes.
Victoria state police Commissioner Graham Ashton says the suspect, who was originally from Somalia, was known to police, mostly because of family members who were "persons of interest" to police.
Video has emerged of a man lunging at police with what appears to be a knife before being shot in Melbourne's Bourke St.
Shire Ali was shot by police and later died in hospital. Other footage showed two stab victims lying on the ground nearby.
The man and one victim died at hospital, while two others were treated for injuries, according to the police.
Police warned people to avoid the area and dispatched the bomb squad to secure the area and examine the burning auto.
Victoria police declined to comment when contacted about Islamic State's claim.
Islamic State has claimed responsibility for the attack.
Mr Ashton said police were "doing security reassessments of these events in light of what's occurred", but there was "no ongoing threat we're now aware of in relation to people surrounding this individual".
This year is of particular significance as it marks 100 years since the end of World War 1.
An attacker who stabbed a man to death in Melbourne, Australia, has died after being shot by police in what authorities are calling a terrorist attack.
Police told people to stay away from the area.
"I want to point out that what we saw yesterday was an act of terror", said Andrews, who also described the attack as "pure evil".
A staunch USA ally, Australia has been on alert for such violence after a Sydney cafe siege in 2014, and its intelligence agencies have stepped up scrutiny, though there was no warning of the latest attack. His brother Ali Khalif Shire Ali is now on remand awaiting trial next year for allegedly planning an attack, Ashton said.
The attack on Bourke Street horrified hundreds of onlookers during the afternoon rush hour in Australia's second-biggest city.
Islamic State is taking credit for a savage terror attack in Australia that killed one man and could have left scores dead.
Police in Melbourne, Australia ended a terrorist attack earlier today, but not before the man killed one bystander and wounded two others.
A witness, Markel Villasin, told Australian Broadcasting Corporation radio: "Bystanders were yelling out "just shoot him, just shoot him".
It is a popular area and was full of people when the attack happened on Friday evening just before peak hour.
Police cordon off Bourke St following a stabbing incident in Melbourne.
Commissioner Ashton also says there was no suggestion that Khalif was inspired by James "Dimitrious" Gargasoulas, who is now on trial facing six charges of murder after allegedly mowing down pedestrians in January 2017. The City of Melbourne is in the process of installing bollards to block traffic access to pedestrian malls.