A man was shot dead by police in Iceland this morning, reportedly becoming the first person in the country ever to be killed in an armed police operation.

According to reports from an Icelandic news agency, a man in his fifties armed with a shotgun started threatening neighbours in a Reykjavík suburb in the early hours.

Police arrived at the scene and evacuated residents from the building.

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Officers reportedly tried to make contact with the gunman, and when that failed attempted to immobilise him with gas canisters fired through the apartment windows.

“That did not work and the man started shooting out of the windows of the apartment,” Reykjavik police chief Stefan Eiriksson told the AFP news agency.

At around 6am a police Swat team entered the building. The gunman opened fire, hitting one officer on the helmet and another on a shield, though neither was seriously injured.

When officers returned fire, the gunman was fatally wounded, and later died in hospital.

“The police regrets this incident and wishes to extend its condolences to the man's family,” national police chief Johannessen told the agency.

An investigation has now been launched into the incident, and the weapons used by police have been seized. They will form part of an inquiry from the special prosecutor, local reports said.

With a population of just 322,000 people and an extremely low crime rate, it is very rare for Iceland police to ever draw their weapons.