A crowd gathered in Gippsland as Victorian police fired shots at a drug-affected man during a siege at a house in Traralgon on Thursday night.

Police were called to the house on Crosses Road with reports a man was armed with knives.

Inspector Dean Thomas said local police called the dog squad and critical response team from Melbourne.

"Police tried to negotiate with the male but that failed, the male was armed with a knife and was very threatening to police," he said.

Inspector Thomas said police fired non-lethal rounds at the man to overpower him.

"There's a number of options, weapons that they can use that are non-lethal," he said.

Video footage of that moment has been posted online showing a large crowd watching as the police tried to control the man.

Inspector Thomas said it was difficult when these incidents happened in residential areas.

"We try to keep the people back a distance to keep them safe," he said.

He said the man was taken to hospital with minor injuries and will appear in court at a future date.