A Christmas Day terrorist plot targeting Melbourne landmarks has been foiled after police conducted raids across the city’s north west.

Seven people were arrested overnight at properties in Flemington, Meadow Heights and Dallas in Melbourne over the alleged plot, which police said was inspired by the Islamic State group.

Two have since been released without charge while five men remain in custody, aged in their 20s, police said.

“In relation to that threat, we believe that there was an intention to conduct what we call a multi-mode attack, possibly on Christmas Day, the possible locations that we have been working on have been Federation Square, Flinders Street Station, and St Paul’s Cathedral,” Victoria Police Chief Commissioner Graham Ashton said.

He added that police believed there were also plans to use other weapons including knives and firearms.

At a press conference this morning, Prime Minister Malcolm Turnbull called the plan “one of the most substantial terrorist plots that have been disrupted over the last several years.”

Mr Turnbull also urged Australians to remain vigilant and report suspicious activity to authorities.

“We should call the national security hotline, 1800 123 400. Speak up. Don’t ever be afraid of making a call of letting the police know,” he said.

The raids were part of a counter-terrorism operation involving Victoria Police, the Australian Federal Police and ASIO.

– with other agencies