Footage of the moment a police officer apologised to bystanders after realising they had been hit by police bullets at a busy Sydney shopping centre yesterday has emerged.

"I'm so sorry, I'm so sorry," the female officer can be heard saying multiple times.

Three elderly women suffered serious gunshot wounds as 23-year-old Jerry Sourian was shot by officers at Westfield Hornsby just before midday.

WARNING: Graphic content above.

Exclusive video obtained by 9NEWS shows Mr Sourian running towards the female officer with a large carving knife in his hand.

The man approaches a police officer before the shooting. (9NEWS)

The footage from a smartphone shows the officer saying "drop the knife" as Mr Sourian approached.

As he lunges towards the officer - within four metres of her - two bullets are discharged.

A harrowing wailing is immediately heard, and that continues throughout the video. The screaming is believed to be that of an elderly woman who was shot - either from a bullet or shrapnel ricochet.

Mr Sourian stays on his feet after the initial two shots, staggering around the market area.

The police move towards him and he lunges at the officers once again.

Police surround the suspect. (David Henry)

A third shot is fired at Mr Sourian and he crumples to the ground slowly, as sirens from emergency services ring out.

Mr Sourian, an 82-year-old woman and a 65-year-old woman were later taken to the Royal North Shore Hospital.

The women remain in a stable condition.

A 60-year-old woman was also taken to Westmead Hospital where she too remains in a stable condition.

Mr Sourian is believed to have suffered gunshot wounds to his arm, abdomen, and thigh. He remains in a serious but stable condition.

Police said Mr Sourian was reported missing from a nearby psychiatric centre on Wednesday, after disappearing two weeks ago.

Witnesses reported seeing Mr Sourian "babbling incoherently" and walking around the centre barefoot before the shooting.

Assistant Commissioner Denis Clifford said a critical incident investigation had been launched, and part of the focus would be on whether a Taser or pepper spray - which the officers had with them - could have been used.

"A decision was made by those officers in a life-and-death situation," he told reporters.

Asst Comm. Clifford said police will allege Mr Sourian approached officers with a "large carving knife" before he was shot.

He confirmed all of those injured had suffered gunshot wounds from police rounds. Video from the scenes showed the female police officer apologising to one of the injured women.

Asst Comm. Clifford admitted it was alarming that bystanders had been injured by police gunfire.

"But I wonder what would have happened if police didn't intervene," he said.

Witnesses described the panic at the centre in the moments after the shooting.

"There was blood everywhere," local butcher Adam Stratton told 9NEWS.

"There were four people lying down, there would have been 10 or 15 metres between them.

"They were all just scattered on the floor."

Mr Stratton said panicked shoppers barricaded themselves inside his shop after gunfire rang out.

"I’ve never seen anything like it," he said.

"Watching everyone run, it was pretty scary. It was three really loud gunshots, I’ve never heard anything like it.

"I had people running into our shop and a stampede of people running past.

"As soon as they’ve come in, we’ve locked the door up. We didn’t know if someone was running around the hall with a gun or not."

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Mr Stratton said the offender was shot close to the scene of a fatal stabbing at the shopping centre in March.

Police and paramedics at the scene. (9NEWS)

The Westfield is located in Hornsby, on Sydney's Upper North Shore. (9NEWS)

On March 30, a 45-year-old man stabbed two people at Kangnam Korean BBQ restaurant in the centre, in a domestic incident.

Alexander Villaluna was charged with the murder of Keith Collins, 53 and the attempted murder of Jovi Pilapil, 38, after he allegedly stabbed the pair while they were dining.