He is now being interviewed by police in relation to offences of act in preparation to commit a terrorist attack and collecting documents to facilitate a terrorist act, and is expected to be charged once the interview process has concluded.
"This is a person who would become particularly energised when overseas events occurred". Last year, almost 500,000 people gathered there for New Year's festivities.
Patton said Ali, a known extremist and a sympathizer of the Islamic State group, had been having face-to-face meetings about getting a gun.
Speaking at a press conference, Victoria's deputy police commissioner Shane Patton said the man could appear in court later today or tomorrow.
The unnamed man was born in Australia to Somali parents, but was not linked to any mosque, according to Patton, and he had been monitored by the police since previous year as a "high-risk person of interest".More news: Court: DOD can't delay transgender enlistments beyond January 1
It was not linked to any other operation, added the police.
"The male is one of our high risks persons of interest, we have been monitoring him for a lengthy period of time", Patton said.
One of the charges carries a maximum life in prison sentence.
"The aim of these terrorists is to foster fear and intimidation, but Australians should be able to go about their business secure in the understanding that the Government has worked very closely with law enforcement and other security agencies to keep them safe", Keenan told reporters.
Last year, police said they had foiled a major terror attack planned for Christmas Day in Melbourne, with Federation Square also among its alleged targets.
The man had allegedly obtained an al-Qaida manual from the internet with instructions on staging a terrorist attack and how to operate a gun.