The prime minister described the attack, which left the terrorist dead following a shootout with officers, as a shocking and cowardly crime.
There was a lot still unknown about the deadly crime but the offender specifically claimed it was a terror attack.
Mr Turnbull, holding a press conference in Canberra, repeatedly queried how the known violent offender was out on parole.
"How was this man on parole? He had a long record of violence. A very long record of violence. He had been charged with a terrorist offence some years ago and had been acquitted," he told reporters on Tuesday.
"He was known to have connections, at least in the past, with violent extremism. But he was a known, violent offender. How was he on parole?"
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Parole ban put on COAG agenda
Victorian Premier Daniel Andrews said Khayre had served time for a 2012 home invasion and could not get parole when his minimum sentence of three years was served because of "terrible behaviour" in prison.
He was granted parole in November last year - four-and-a-half years into his five-and-a-half year sentence.
"(Since then) he's been compliant, including drug tests, attending appointments and observing a curfew," Mr Andrews told reporters on Tuesday.
"As with all these matters though, we'll look at each and every element of the act and if there are learnings and improvements that can be made, we stand ready to do that."
Turnbull labels attack 'cowardly'
Mr Turnbull drew a link between the Brighton gunman and Lindt Siege hostage- taker Man Monis.
"More investigations and explanations will be given but it is plainly - it is very hard, I think - to understand why he was released on parole given the nature of his record and the nature of his offence," he said.
Tightening the parole system will be high on the agenda at a meeting of the prime minister and premiers on Friday after the Melbourne terrorist siege.
Mr Turnbull said Australian faced a growing threat from Islamist terrorism but authorities remained committed to defying and defeating threats.
"It is a terrorist attack and it underlines the need for us to be constantly vigilant, never to be deterred, always defiant, in the face of Islamist terrorism," he said.
"With every development in the sick pathology of terrorism, we have to learn from it, we must be more agile that those who seek to do us harm.
"... What is clear here is that we face a growing threat from Islamist terrorism in Australia in our region and around the world.
" We will continue to defy it and we will continue to defeat it."
Melbourne siege 'treated as terrorism' as IS claims responsibility
Long-time criminal Yacqub Khayre is the man behind the deadly Brighton siege that claimed the life of an innocent apartment clerk, as Victoria Police confirmed they're treating the incident 'as a terror attack'.
The Somalian-born man, 29, had served jail time over a violent burglary in 2012 and was on parole at the time of Monday's siege, Chief Commissioner Graham Ashton said.
Mr Ashton said he had been on parole since being released from prison last November and "there was nothing wrong with his parole until yesterday."
Khayre also spent 16 months on remand before being acquitted of the 2009 Holsworthy army barracks terror plot in Sydney.
In 2007, he was charged with armed robbery after holding up passengers on a Melbourne train, leaving one man with knife wounds.
He lived in the Melbourne suburb Roxburgh Park with his mother and police will search their home on Tuesday, as well as continue work at the Bay St serviced apartment block.
Islamic State has claimed responsibility for Monday's incident through their Amaq news agency, which claimed: "The attack in Melbourne, Australia was carried out by a soldier of the Islamic State in response to the call for targeting the subjects of the coalition states."
File: Yacqub Khayre (right) and Abdirahman Amend leave court in Melbourne, Thursday, Dec. 23, 2010. Source: AAP
Mr Ashton, who confirmed earlier on Tuesday that police were treating it "as a terror attack" downplayed their statement.
"We're aware of, online, them having claimed responsibility, but then they always tend to jump up and claim responsibility every time something happens," he told reporters.
"... But he's also made statements la night around (rival organisation) al- Qaeda."
Victorian Premier gives more details on attacker
Police shot dead Khayre as he stormed out of the Bay St, Brighton serviced apartment building shortly before 6pm and began firing.
Two officers - including one with wounds to his face and neck - were taken to hospital while a third was treated at the scene.
A female escort held hostage was rescued from the ground floor apartment.
Officers had earlier found the body of a clerk, an Australian national born in China, in the foyer.
"He appears to (have been) in the wrong place at the wrong time," Mr Ashton said.
He said it was too early to know what Khayre had been planning, but said it was a "possibility" that he wanted to ambush police.
"That's all been weighed into the calculations but we haven't found anything like a note or anything like that so far."
Mr Ashton earlier told Nine that the gunman had been known to police because of his background "in relation to terrorism matters, albeit some years ago."
He said there had been no information that he had been planning an attack.
"He is someone certainly known to us from his background but certainly as of yesterday there wasn't anything that we had that suggested that he was planning on embarking on this, that this was anything more than a spontaneous act."
