Two women have been stabbed, one fatally, allegedly by a man with a knife who went on a rampage through Sydney's CBD.

UPDATE: How hero bystanders took down alleged Sydney knifeman with a milk crate

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Mert Ney was taken into police custody about 2pm following a citizen's arrest, in which onlookers pinned him down on the street using a milk crate and two chairs.

One woman was taken to hospital in a stable condition with a stab wound in her back at the same time of Ney's arrest near Wynyard station.

About an hour later, police found the body of a woman in a block of units on Clarence Street with fatal stab wounds to her neck and throat.

EARLIER:

NSW Police Commissioner Mick Fuller said a third woman presented to The Rocks Police Station with her hand "wrapped in a scarf".

It was later ascertained she had not been stabbed.

Police said "ideological material" had been found on Nay but that he had no links to terrorism.

A police spokesperson confirmed to 7NEWS.com.au the body was found near the crime scene.

During the incident, Ney also allegedly jumped on the bonnet and roof of a Mercedes, and was also heard yelling "Allahu akbar".

Police have described the witnesses who apprehended the man and held him down until police arrived as heroes.

A man covered in blood and brandishing a large knife has been chased by witnesses through Sydney's CBD after stabbing a woman.

7NEWS has been told the alleged attacker had absconded from a mental health facility in recent days.

CORRECTION: A previous iteration of this article stated that a third woman had been stabbed and reported to The Rocks Police Station. 7NEWS has since confirmed that is not the case.