Eight firearms and "a large amount" of ammunition have been found during a police raid last night at the home of a man involved in a shoot-out in the New South Wales town of Queanbeyan early yesterday.

Residents were forced to take cover during the incident, which left the 60-year-old suspect injured.

A NSW Police spokeswoman said they searched the home of the man while he remained under police guard at Canberra Hospital. He was still under police guard this morning, with charges yet to be laid.

Cars on the street were spattered with shotgun pellet marks. ( ABC News )

The spokeswoman said the man, who was not previously known to police, lives on a residential property on the border of Jerrabomberra.

Officers raided the home at about 4:30pm Friday afternoon.

On Saturday, NSW Police said officers were called to Monaro Street shortly before 4:00am following reports from the public of shots being fired.

After officers approached the suspect in Crawford Street, residents took shelter in nearby businesses.

The man moved towards the BP Petrol Station on Low Street, where a NSW Southern Region Commander said he confronted police officers.

"The man refused to surrender and was shot in the hip, although at that point he remained conscious and quite vocal," Assistant Commissioner Peter Barrie said.

"He was disarmed... and after being treated at the scene he was conveyed to Canberra Hospital where he remains in a serious but stable condition."

He said there were no other injuries, but witnesses were "very distraught" over the "horrific incident".

A shotgun on the street six hours after the shoot-out. ( ABC News )

Police launched a critical incident investigation into the circumstances and the discharge of a police firearm.

A pool of blood, medical supplies and a shotgun were seen on the concrete across the road more than six hours after the shooting.

One police car was peppered with shotgun pellets, while another had a smashed windscreen.

Assistant Commissioner Peter Barrie said there was also damage to residents' cars.

Neighbours said they were upset and shaken, as there was a murder in the area last year.

The man was understood to be in a serious but stable condition on Sunday morning.

NSW Police asked for any witnesses or for anyone with information to come forward.