Two people are dead and three others are in hospital after gunfire broke out in downtown Toronto early Sunday in an often crowded part of the city known for its late-night bars and restaurants.

Police were called to the area of Spadina Avenue and Nassau Street — in the heart of the city's Chinatown — at 3:18 a.m. by reports of a shooting.

An unknown assailant had fired on a group of men, wounding five, according to police, though initial reports said six people had been shot.

One man was pronounced dead at the scene and another died in hospital some five hours later.

It is not clear where the shootings took place but police soon taped off the sidewalk outside three nearby restaurants: the New Ho King, its next-door neighbour Thai Country Kitchen and Sizzler Kabab, across the street.

One witness told reporters he saw a paramedic treating a wounded man on the floor of Sizzler Kabab.

The victim "had blood all over his stomach area," said Zaigham Ali. "The paramedics were helping him out … it was like a movie scene."

Area resident Nick Counter said he was going to bed when he heard what he thought were firecrackers. He says the neighbourhood is noisy but safe.

"I don't think this represents what goes on here," he said.

"It's scary to think someone who might not be responsible, or a bystander, could have been hurt."

The deaths are the city's eight and ninth homicides of the year.

Det. Sgt. Mike Carbone says an altercation led to five people being shot on Spadina Avenue near College Street. 1:16

The shooting appears to have been touched off by "some type of altercation," a homicide detective said at a news conference.

"It's very, very early in the investigation," Det. Sgt. Mike Carbone told reporters.

He said police are reviewing surveillance video of the area and are exploring the possibility that the shooting could be gang-related.

Police have not issued a description of suspects.

"We're still working through that," Carbone said.

Police taped off the sidewalk outside three nearby restaurants: the New Ho King, its next-door neighbour Thai Country Kitchen and Sizzler Kabab, across the street. (Andrew Collins/CBC)

The identities of the slain victims have not been released, pending notification of their families.

Spadina was closed until Sunday afternoon from College to Dundas streets as police investigated and spoke to witnesses. Police expanded the crime scene several times early Sunday morning.

Carbone noted there were a number of people in the area at the time of the incident and would like any witnesses to come forward particularly those with video.

Anyone with information is asked to call authorities at 416-808-7400 or Crime Stoppers anonymously at 416-222-8477.