A 35-year-old man has been arrested after a siege in a Melbourne restaurant ended this morning with the release of a woman who was being held hostage.

The 27-year-old woman was released about 5:30am (AEST) after being held by the knife-wielding man, who barricaded himself inside the Ludlow Bar and Dining restaurant at Southbank about 10:00pm yesterday.

Police said the man was a disgruntled former employee of the restaurant.

The man was wheeled out of the restaurant on a stretcher and taken to an ambulance for a precautionary assessment at St Vincent's Hospital after being tasered by police when he released the woman.

He had made his way into a storeroom at the rear of the restaurant armed with a knife earlier on Sunday night, a police spokesman said.

The spokesman said the woman, a female staff member known to the man, was in the storeroom at the time.

Staff self-evacuated the restaurant after another staff member saw the knife and called police, the spokesman said.

Police said the man had been employed by the restaurant as recently as last week.

"At this stage it's really the subject of an ongoing investigation, but all I can say is that he was fairly disgruntled around some employment issues with the restaurant," Inspector Travis McCarthy said.

Inspector McCarthy said he did not know whether the man had specifically targeted the woman and whether he had made any threats.

He said police were considering potential charges.

The surrounding area was cordoned off during the siege.