A man has lost his arm after a beer keg he was tapping exploded at a bowling club in Newcastle.

Police, fire crews and paramedics were called to the Bar Beach Bowling Club just after 8:00pm last night and quickly evacuated 40 staff and patrons from the venue.

Chief Inspector Dean Olsen said the 23-year-old staff member was releasing the air from a beer keg when it exploded.

"The information that we have got from witnesses is that an explosion occurred in the cool room or store room of the club," he said.

"Witnesses have said that the explosion was quite loud and rocked the premises."

The man was taken to John Hunter hospital where his arm was amputated.

He remains in a critical but stable condition in hospital.

Keg explosion like bomb going off: chef

The club's head chef, Nick Gaul, said the explosion sounded like a bomb going off.

"People were sort of a bit shocked and kind of getting out of the club not really knowing what caused the explosion," he said.

"[The] first thing that came to my mind was some kind of bomb's gone off; I didn't know what to think.

"The cops were there within five minutes and they kicked everyone out of the club.

"I just turned off the gas in the kitchen and basically left it how it was."

Work Cover New South Wales is investigating.