SYDNEY - Three people have died following a shooting west of Sydney in Australia's eastern state of New South Wales (NSW) on Thursday afternoon.

The NSW Police Force said in a statement that emergency services were called to reports of a shooting in the small town of Lake Cargelligo, 450 km west of Sydney, around 4:40 pm local time on Thursday.

Police confirmed that three people, two women and a man, had died.

A second man has been taken to hospital in a serious but stable condition.

A crime scene has been established and police have urged members of the public to avoid the area and local residents to stay indoors.

The gunman is believed to be holed up in the town with a long-arm weapon after "a suspected domestic violence attack," The Sydney Morning Herald newspaper reported.

Police are working to locate the gunman and have dispatched resources from neighbouring policing districts to the town, including heavily armed tactical police, the newspaper said.

Local resident Manisha, who did not want to give her surname, told The Daily Telegraph that police cars and ambulances were "all over town."

"We have been told not to go out of our premises," she said. "The town is made of just two main streets - we can hear the sounds (of the sirens)."