A civilian NSW Police employee has been "callously murdered" and his killer shot dead as officers returned fire outside police headquarters at Parramatta in Sydney's west.

Police Commissioner Andrew Scipione said the lone gunman, who is yet to be identified, shot the police employee at close range as he was leaving the building around 4:30pm on Friday.

The offender then fired several more shots at officers as they emerged from the building to respond to the incident.

The gunman was killed when the officers, who are special constables, returned fire.

In an emotional media conference, Mr Scipione praised the senior constables for the way they handled the situation.

"Those special constables certainly put their lives on the line this afternoon," Mr Scipione said.

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"They acted in a way that was incredibly courageous. And I'm just so pleased that they're all well ... they were incredibly professional."

Mr Scipione described the incident as a callous attack.

"I've viewed a number of pieces of footage. I can tell you this was a brutal crime," he said.

"An employee of the New South Wales Police Force has been callously murdered here today. He was simply leaving work.

"The footage I've viewed shows this particular man was deliberately targeted.

"We acknowledge that this is a terrible episode and it will have an impact on our officers.

"There is no way you can describe the feeling that comes with being told that you have an officer that's been killed."

Commissioner says no ongoing threat to community

The Commissioner stressed there was no ongoing threat to the surrounding community.

"My message to the people of NSW is they are safe, there is no threat that we are dealing with that at this stage we haven't resolved here. We will get to the bottom of this matter," he said.

"An investigation will be conducted. It will be very thorough and we'll do that as soon as we can."

"At this stage we've got nothing to link this event to any terrorist-related activity but we could not say that that wasn't the case.

"So clearly you would understand we have officers from within the counter-terrorism command working alongside homicide, but this is a homicide investigation, led by homicide.

"The identity of the gunman is not yet known, and until we can identify him, we're not in any position to take this any further in terms of motive or any other particular, around this particular attack.

"At this stage, as I've said, we're not going to speculate, we're going to keep a very open mind."

Shortly after the incident, a crime scene was established, with surrounding streets blocked off and a police helicopter seen hovering above.

Police asked the public to avoid Charles Street, Hassall Street and Wigram Road.

Witnesses heard multiple gunshots

Witnesses earlier reported seeing two bodies covered with sheets on Charles Street.

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A man who lives opposite the police headquarters recalled hearing gunshots.

"I was doing some work at my home and there's a gunshot and I thought it was a tyre puncture," the man told ABC.

"Then all of a sudden two more, two more shots came.

"I said to my wife 'somebody is shooting somebody', and then she opened the door and she saw somebody ... the security guys from the headquarters ... he was standing and shooting the other guy, and before that the other guy tried to shoot."

Another local man, Raj Sodhi, said he also heard multiple gunshots.

"As I was sitting in my apartment I heard three or four bangs," he said.

"At that time I couldn't comprehend what was happening. I thought it must have been the construction site nearby. And then within half a minute of that there were three or four more bangs.

"It's kind of scary because it has happened at this time of day when people are coming back home from work, in broad daylight. It's kind of unusual, it's kind of scary as well."