A dramatic police operation at a major CBD intersection was sparked by a man's erratic driving on Flinders St.

A 26-year-old man has been arrested by members of the Critical Incident Response Team and local police after he was intercepted at the corner of Flinders and William streets at 1.50pm.

Traffic has resumed on Flinders St and Williams St.

An earlier exclusion zone has been lifted, with traffic resuming Flinders St and Williams St.

The man remains in custody and is expected to be interviewed soon.

No one was injured in the incident.

Police earlied swarmed the major city intersection, sending officers into lockdown and haulting trams.

The car has been towed from the scene.

Eyewitness Campbell Jabs said he was stopped at the lights and witnessed a silver Mazda sedan sitting with his hazard lights on.

"His hazards lights were on and he was stopped at the intersection," he said.

"There was about 6 police cars and about 3 grey response cars who jumped out, they had guns drawn.

"I was like 's--- this real.' "It happened in a flash.

"He opens the guy out and drags him out, putting the cable tie around him.

"Then there were another 6 cops that jumped out.

"It was really serious.

"To have that many with guns drawn, it was really weird.

"It was a heavy response.

"It was so quick."

Another witness Heba Teryaki, 24, said she saw the man stand up on the roof his car at the intersection of Flinders St and Elizabeth Street.

"He was saying stuff, I don't know what he was saying," she said.

"He was yelling, it went for about 5 mins.

"There were heaps of people watching.

"He started revving up his car and then did one donut.

"I followed him to get his number plates.

"I was really scared, frightened.

"I thought dead set I was going to die.

"He was not going that fast.

"I think he was off his head."

Julian McCrann said he was having lunch in a nearby park about 2pm when he heard sirens.

"A whole bunch of police cars pulled up all of a sudden," he said.

"He (the man) was in the car and then they pulled him out of the car and put him on the side of the road.

"It didn't seem to last for that long - only a few minutes, really. I heard the police cars coming and then as I walked past they had him on the side of the road."

Mr McCrann said he did not see what led up to the arrest.

"I just heard the police cars and then I was walking back to work so I just took a short video," he said.

"I couldn't believe how many police cars there were."

Police say they will release more details soon.

"We are asking everyone to avoid the area," a Victoria Police spokeswoman said.

Trams services on routes 70, 58, 75 and the City Circle have been halted.

Train services have now resumed through the city loop but delays of up to 20 minutes are expected while services get back to normal.

Workers in offices and businesses along William St and Flinders Lane remain inside their buildings.

The MFB have arrived on scene as have uniformed detectives.

At about 2.25pm police also opened the back of a truck located under the Flinders St rail overpass.

More to come.