Police have fired shots during a siege in Melbourne's south, with two people taken to hospital, one in a serious but stable condition.

A man armed with a knife had been keeping police at bay at a property on Dandenong Road East at Frankston since about 5:30pm (AEDT) on Monday, with four people — one man and three women — inside.

A Victoria Police officer outside a Frankston house where an armed man was holding four people. ( ABC News: Robert Baird )

The siege ended this morning when police entered the property and gunshots were fired.

A man in his 40s suffered injuries to his lower body and was airlifted to the Alfred Hospital in a serious but stable condition.

A woman in her 30s sustained leg injuries and was taken to the Frankston Hospital in a stable condition.

Victoria Police Assistant Commissioner Robert Hill said the situation deteriorated in the early hours of this morning.

"The offender was becoming quite irrational," he said.

"He was making threats against the three females ... he was making threats of violence."

Assistant Commissioner Hill said the offender stabbed one of the women in the house in the leg.

"At that point of time police responded," he said. "Our members from the SOG [special operations group] fired shots.

"The offender was struck by two shots. One to the stomach area, one to the leg."

Assistant Commissioner Hill said another woman inside the house had been slashed on the hand and suffered a blow to the head.

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The surrounding area had been cordoned off and a nearby childcare centre was in lockdown.

Police said that during the negotiation there had been yelling between officers and the man inside.

Officers believe the man with the knife was involved in a stabbing earlier yesterday that left a man with serious injuries.

Emergency services had been called to Carder Street in Seaford about 10:00am yesterday where a 45-year-old man was found with stab wounds to his upper body.

He was taken to hospital with life-threatening injuries.

Police said the victim was involved in an altercation in Boonong Avenue, in Seaford, where he was stabbed in the lower back.

He walked to a nearby address where the fight continued and he received a slash injury to his neck, police said.

Police were looking for a 46-year-old Seaford man in relation to the incident, described as Caucasian, with blue eyes and short grey blond hair.