Dutch police have arrested a Turkish-born suspect over a possible terror attack on a tram in the city of Utrecht that left three people dead and five wounded.

Police had earlier launched a huge manhunt for Gokmen Tanis, 37, issuing a picture of him on the tram and warning the public not to approach him.

Heavily armed officers later surrounded a building following the bloodshed in the Netherlands' fourth largest city and his arrest was dramatically announced at the end of a news conference.

Dutch authorities said they were still investigating a likely terrorist motive for the attack but said they "cannot exclude" other motives, including a family dispute.

"We have just heard that the suspect we are looking for has been arrested," Utrecht police chief Rob van Bree told a news conference after being handed a piece of paper with news of the arrest.

The head of the Dutch national counter-terrorism service, Pieter-Jaap Aalbersberg, confirmed "the arrest of the main suspect for the shooting".

He said authorities had lowered the threat level in Utrecht from the maximum level five as a result of the arrest.

Dutch Prime Minister Mark Rutte said the theory that it was a terror attack "could not be excluded", vowing that the Netherlands would "never give way to intolerance".

Security forces were on high alert at airports and mosques following the shooting, after which a body covered in a white sheet could be seen lying on the tram tracks.

Mosques in Utrecht had shut for the day following the attack, the ANP news agency said, which comes just days after 50 people were killed at mosques in New Zealand in a rampage by an alleged white supremacist.

The city's mayor Jan van Zanen said it was a "black day for Utrecht".

Prosecution officer Rutger Jeuken said that "it looks like what we are dealing with is a terrorist motive".

But officials added that they "could not exclude" reports that the gunman had targeted a woman known to him and others who tried to help her.

The suspect was reportedly in court in a rape case two weeks ago, broadcaster NOS said.

One witness told NOS they had seen an injured person running out of the tram with blood on her hands and clothes who then fell to the ground.

"I brought her into my car and helped her. When the police arrived, she was unconscious," the witness, who was not named, told the broadcaster.

The father of the suspect, Mehmet Tanis, said his son should be punished if found responsible, a Turkish news agency reported.

"If he did it he must be punished," the DHA agency quoted the father as saying.

He said he had lost contact with his son having returned to his homeland in 2008 after divorcing his wife, DHA reported. She remained in the Netherlands with Gokmen.

"He did not have an aggressive attitude - but 11 years have gone by. What happened, what has he experienced? I know nothing whatsoever," Mehmet Tanis said.

All major political parties including Mr Rutte's VVD announced that they were suspending campaigning ahead of local elections on Wednesday which will determine the make-up of the Dutch senate.

"An act of terror is an attack on our civilisation, on our tolerant and open society. If this continues, only one answer is appropriate. And that is that our rule of law and our democracy are stronger than fanaticism and violence," Mr Rutte told a brief press conference in The Hague.

"We will not give way to intolerance. Never."

The Dutch military police said they were on "high alert" and were boosting security at airports and at other vital buildings including parliament and Rutte's office.

Mosques in Utrecht shut for the day following the attack, the ANP news agency said, which comes just days after 50 people were killed at two mosques in New Zealand in a rampage allegedly carried out by a white supremacist.

European allies expressed support for the Dutch government.

"The EU stands side by side with the Netherlands and its people during these difficult times," European Commission chief Jean-Claude Juncker said.

British Foreign Secretary Jeremy Hunt said it was "hugely concerning news of a gunman opening fire on a tram in Utrecht, no doubt with innocent people just getting on with their day... The UK stands with the people of the Netherlands."

The Netherlands has been largely spared the kind of attacks which have rocked its closest European neighbours in the past few years, but there has been a series of recent scares.

In August, a 19-year-old Afghan with a German residence permit stabbed and injured two American tourists at Amsterdam's Central Station before being shot and wounded.

In September, Dutch investigators said they had arrested seven people and foiled a "major attack" on civilians at a big event in the Netherlands.

In June, two terror suspects were arrested while close to carrying out attacks including at an iconic bridge in Rotterdam and in France, prosecutors said.