“A number of shots were fired” on Charles Street, Parramatta in western Sydney outside the New South Wales police headquarters about 4.30 pm (0630 GMT), police said in a statement.
“It appears an officer has discharged his weapon, responding to a report that a person had been shot,” the statement said.
“Two people have died at the scene. A crime scene has been established.
“A critical incident team will now investigate all circumstances surrounding the incident.”
Investigators said they were yet to confirm the identities of the two people, while a police spokesman earlier told AFP it was too soon to determine if the incident was terrorism-related.
Local media reported that a gunman shot a civilian police employee before an officer guarding the headquarters fired on the attacker, but investigators have not confirmed any details.