Police released a picture of the Turkish-born suspect, naming him as 37-year-old Gokman Tanis.

Dutch police on Monday arrested the suspect in a shooting on a tram in the city of Utrecht in which three people were killed, a police chief said.

"We have just been informed that the suspect has been arrested," Utrecht police chief Rob van Bree told a news conference.

Police had earlier said they were searching for Turkish-born suspect Gokmen Tanis, 37, and issued a picture of him.

The head of the Dutch national counter-terrorism service, Pieter-Jaap Aalbersberg, confirmed "the arrest of the main suspect for the shooting".

He said authorities had lowered the threat level in Utrecht from the maximum level five as a result of the arrest.

Dutch Prime Minister Mark Rutte said a terror attack "could not be excluded", vowing that the Netherlands would "never give way to intolerance".

Security forces were on high alert at airports and mosques following the shooting, after which a body covered in a white sheet could be seen lying on the tram tracks.

"We are working on the principle that it was a terrorist attack," Utrecht Mayor Jan van Zanen said on Twitter.

Zanen and Utrecht police said three people were killed. They initially said nine were wounded but later lowered the number to five.

Mosques in Utrecht had shut for the day following the attack, the ANP news agency said, which comes just days after 50 people were killed at mosques in New Zealand in a rampage by an alleged white supremacist.

Several hours after the shooting the mayor lifted advice to residents to remain indoors, although the area remained cordoned off and forensic police were still combing the scene, AFP reporters said.

Reports in Dutch media quoted eyewitnesses as saying the gunman appeared to target one woman and others who tried to help her.

Suspect Tanis was reportedly in court in a rape case two weeks ago, broadcaster NOS reported.

One witness told NOS they had seen an injured person running out of the tram with blood on her hands and clothes who then fell to the ground.

"I brought her into my car and helped her. When the police arrived, she was unconscious," the witness, who was not named, told the broadcaster.

Special Police forces inspect a tram at the 24 Oktoberplace in Utrecht. (AFP)

'Stay in your home!'

Other witnesses said the chaos after the shooting was "awful".

"When I left the house to look the police shouted at me 'stay in your home and get out of the garden!," Yvonne Von Rai, a retired woman, told AFP.

"Suddenly there were a lot of police cars rushing by and we could hear two trauma helicopters landing - at was just awful," said Karlijn Zwinkels, a 19-year-old student living close to where the incident happened.

Prosecutors, police and the mayor were due to give a press conference at 1700 GMT with further details.

Dozens of armed police later surrounded a building a few hundred metres away from the scene, an AFP reporter, but it was not clear if the gunman was inside.

Police said they believed a red Renault Clio had been carjacked around the time of the shooting and had been found abandoned later.

'Never give way to intolerance'

All major political parties including Rutte's VVD announced that they were suspending campaigning ahead of local elections on Wednesday which will determine the make-up of the Dutch senate.

"An act of terror is an attack on our civilisation, on our tolerant and open society. If this continues, only one answer is appropriate. And that is that our rule of law and our democracy are stronger than fanaticism and violence," Rutte told a brief press conference in The Hague.

"We will not give way to intolerance. Never."

The Dutch military police said they were on "high alert" and were boosting security at the airports and at other vital buildings including parliament and Rutte's office.

Mosques in Utrecht shut for the day following the attack, the ANP news agency said, which comes just days after 50 people were killed at two mosques in New Zealand in a rampage allegedly carried out by a white supremacist.

'Stands side by side'

European allies expressed support for the Dutch government.

"The EU stands side by side with the Netherlands and its people during these difficult times," European Commission chief Jean-Claude Juncker said.

British Foreign Secretary Jeremy Hunt said it was "hugely concerning news of a gunman opening fire on a tram in Utrecht, no doubt with innocent people just getting on with their day... The UK stands with the people of the Netherlands."

The Netherlands has been largely spared the kind of attacks which have rocked its closest European neighbours in the past few years, but there has been a series of recent scares.

In August, a 19-year-old Afghan with a German residence permit stabbed and injured two American tourists at Amsterdam's Central Station before being shot and wounded.

In September, Dutch investigators said they had arrested seven people and foiled a "major attack" on civilians at a major event in the Netherlands.

In June, two terror suspects were arrested while close to carrying out attacks including at an iconic bridge in Rotterdam and in France, prosecutors said.