Residents were forced to take cover in the south-east New South Wales town of Queanbeyan on Saturday morning during a shoot-out with police, which left the suspect injured.

NSW Police was called to Monaro Street shortly before 4:00am after reports from the public of shots being fired.

After officers approached the middle-aged man in Crawford Street, residents took shelter in nearby businesses as the shooting continued.

The man moved towards the BP Petrol Station on Low Street, where a NSW Southern Region Commander said he confronted police officers.

"The man refused to surrender and was shot in the hip, although at that point he remained conscious and quite vocal," Assistant Commissioner Peter Barrie said.

Shotgun shells and medical equipment surrounded the pool of blood. ( ABC News )

"He was disarmed... and after being treated at the scene he was conveyed to Canberra Hospital where he remains in a serious but stable condition."

He said there were no other injuries, but witnesses were "very distraught" over the "horrific incident".

"I haven't spoken to witnesses personally... I understand many people were quite traumatised," he said.

While the location and "exact nature" of the shots were still being determined, Assistant Commissioner Barrie said there was damage to police cars and those owned by members of the public.

The suspect was believed to be a local resident, not known to police.

Assistant Commissioner Barrie said the motive was not yet known and would form part of the investigation.

Pool of blood and shot gun left on street

A shotgun on the street six hours after the shoot-out. ( ABC News )

Two patrol cars were left in place at the scene late morning, their doors still flung open. One parked a metre from where the man was taken down had a shattered front window.

A pool of blood and a shotgun were also seen on the concrete across the road.

A few blocks away, another police car was peppered with shotgun pellets.

Cars on the street were spattered with shotgun pellet marks. ( ABC News )

One resident said he was upset and shaken.

He said he was still shocked by the murder at a petrol station in the same area last year.

Police launched a critical incident investigation into the circumstances and the discharge of a police firearm.

Multiple crime scenes were established and police called for witnesses to come forward.