Watch: ' Shoot him!' - crowds yell at Aussie police officers after driver erratically reverses down street

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AAP

A teenager dressed in a black armoured uniform and allegedly armed with a knife, who had been driving erratically near Melbourne's Federation Square on AFL grand final day, has been tasered and arrested by police.

Video footage taken by passers-by and posted online shows the green four-wheel drive reversing at speed down Swanston Street in the CBD before spinning 180 degrees.

A member of the public threw a hire bike under the 4WD to try to stop it, while police rushed to the area.

Crowds of people can be heard yelling "shoot him" as officers try to contain the situation. 

Officers say they are treating it as a mental health situation and don't believe there was any terrorist links.

The teenager was wearing a black armoured uniform, black helmet and carrying a black rucksack.

He got out of the vehicle and was pacing in circles at the corner of Swanston and Flinders streets when police surrounded him shortly before 8am.

He appeared to lunge at one of the officer, who fell back, before the teen was tasered and subdued.

No injuries were reported and the teenager was arrested and is in police custody.

The Bomb Response Unit were searching the 4WD as a precaution and the area has been cordoned off.

Police are urging people to avoid the area.

It comes as thousands pack the area for the AFL grand final between Richmond and Adelaide.

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