Police have spent the night raiding the Sydney home of a man accused of killing a woman before unleashing "terrifying carnage" with a butcher's knife in the city's CBD.

Mert Ney, 20, was arrested yesterday afternoon after he allegedly stabbed a 41-year-old woman at the Hotel CBD about 2pm and then tried to stab countless others as he wandered the streets before being detained near Wynyard station.

READ MORE: Woman killed in deadly alleged stabbing rampage identified

The body of a 21-year-old woman , believed to be a sex worker, was discovered at a Clarence Street apartment after the stabbing unfolded. Police said the homicide and stabbing were linked.

Members of the public, including a firefighter and tradies, were filmed holding the suspect down outside Hotel CBD with chairs. They used a milk crate to pin down his head. (9News)

Video footage shows Ney, who was armed with a large butcher's knife, yelling "Allahu Akbar" while wandering the streets.

Ney's alleged rampage came to a brutal end as heroic members of the public, including a firefighter and tradies, pinned him down using a chair and a milk crate until police arrived.

NSW Police Commissioner Mick Fuller said the rampage was "not currently classed as a terrorist incident" by authorities and the "lone actor" had no links to terrorist organisations.

Ney did, however, have "some ideologies in relation to terrorism".

"There was certainly information found on him about other crimes of mass casualties and mass deaths around the world," Mr Fuller said, adding the material was discovered on a USB drive.

The accused's house. (9News)

Police later raided Ney's Marayong home, which he shares with his mother and sister, and spent the night at the home.

"It will certainly be reassessed by the Joint Counter Terrorism Team to see if we have to reassess that terrorism threat," Mr Fuller said.

Mr Fuller said Ney was at the Clarence Street apartment for "business purposes".

The 41-year-old woman is in a stable condition at St Vincent's Hospital with a single stab wound to her upper back.

Ney remains under police guard in hospital and is expected to be charged.

Who is the suspect in the Sydney stabbings?

The suspect is Mert Ney, a 20-year-old from Marayong, near Blacktown.

A thumb drive he was carrying allegedly contained information on previous terror attacks but he had no links to terror organisations.

Mr Fuller said the information included details of the deadly New Zealand mosque attack as well as other documents involving "mass casualties and mass deaths" in the US.

Police lead away the suspected knifeman after a stabbing attack in Sydney's CBD. (Supplied)

Mr Fuller added that police would be examining where he had been in the past few months and how he went from being a man who "lived with his parents" to the suspect in the CBD stabbings.

He said Ney acted alone and was armed with a butcher's knife.

There is a crime scene investigation at his home. Neighbours said he lived at the house with his mother and sister but "kept to himself" and was "quiet".

Police are examining if he recently escaped from a mental health facility.

They say Ney was known to police and had a history of mental health issues, but his police history was "unremarkable".

(Nine)

Police subdue the alleged Hotel CBD attacker in Sydney. (9News)

Police Superintendent Gavin Wood said Ney attempted to attack multiple people in the street outside the CBD Hotel, however those other attempts failed.

"We don't know the causation or the rationale. It would appear at this stage it was unprovoked," he said.

Following the rampage, Ney was wheeled on a stretcher from Day St Police Station to an ambulance which took him to the RPA Hospital, under police guard.

Mr Wood said those who held down the suspect were heroes.

"They were brave ... significantly brave people."

Paul O'Shaughnesy told 9News Ney was wearing a balaclava and had a knife covered in blood.

"Immediately we all went down the escalator and we continued to chase the guy and other people were going away because obviously he is wielding a knife," he said.

"I don't know whether it is an instinct thing or what. We just got to try to restrain this guy from doing any more.

"My brother and I ran across here and we managed to get a grip along with other guy and we have a grip of him and restrained him fully.

"You just waited for the cops to come. He has blood all over him."

Members of the public pinned the suspect down with a milk crate. (Nine)

Zac Barry told 9News how he helped barricade people inside a building.

"I was out the front and a few people ran up and I took them inside our office because the doors were locked. We stayed off the street I didn't want to risk it," he said.

"(I'm) a little shaken up. But, you know, it's not something that you expect to see in Sydney."

The Uber driver whose car was left splattered in blood when Ney allegedly jumped on it feared the man was carrying a bomb.

The alleged victim of the stabbing rampage in Sydney's CBD. (AAP)

The driver – who wished not to be identified - was taking a couple to Macquarie Street in the CBD when he saw traffic had stopped in Clarence Street.

"I saw the fire brigade and all these people running away."

"Then all of a sudden this guy appears with a knife in his hand and covered in blood down his front shirt."

Ney then allegedly jumped on the car bonnet.

"I was thinking, 'I'm hoping he's not covered in explosives or something'."

The driver then sped away to get him off the car and turned into Clarence Street.

Blood from Ney was left splattered across the car's grill and bonnet. There were also dents in its roof and bonnet.

The driver said he and his elderly passengers were shaken by the incident.

"I was thinking what if I had had the windows down. He had a knife and could have come at me."

One of the men who helped stop Ney, known only as Trevor, said he was not a hero and wanted only to protect his girlfriend.

He said: "At the end of the day I just stood up, did what any Australian man should do."

Police Minister David Elliott praised the members of the public who held the suspect.

"The city celebrates three brand new heroes," he said.

He said they had acted "well and truly beyond the call of any citizen," and said he wanted them to be recognised.

He also praised the fire fighters who went "beyond the call of duty".

"This is how Sydney-siders respond," he said.

"If you want to behave in this sort of manner it's not just the police will respond, it's the citizens, the fires and the ambos.

"This could have been much worse if not for the response."

NSW Premier Gladys Berejiklian, said on Twitter: "Incredible bravery from the public, police & firefighters during the terrible incident in Sydney's CBD today. My thoughts are with the victims and all those affected. I am being briefed by the Police Commissioner as the investigation continues.

Prime Minister Scott Morrison, has called the attack "deeply concerning" and praised the actions of the public who restrained the suspect.

He said in a series of tweets: "The violent attack that took place in Sydney this afternoon is deeply concerning.

"The attacker is now in police custody following the brave actions of those who were present at the scene and were able to able to restrain him.

"The motivation for this attack has not yet been determined as police are continuing with their enquiries.

"Any further official information will be provided by the New South Wales Police, who are keeping us appraised through our agencies, including details of casualties.

"Our thoughts are with all those who have been impacted by this violent attack."

A strong police presence swarmed on the CBD after multiple Triple Zero calls. (Supplied)

What we know about Sydney CBD stabbing

The suspect is Mert Ney, a 20-year-old from Marayong, near Blacktown

Police say the suspect acted alone and has terrorist ideologies, but no links to terrorism

A woman, 21, has been found dead at a unit in Clarence Street with stab wounds. She is reportedly a sex worker

One woman, 41, has been stabbed at the CBD hotel in Sydney

The female patient has been taken to St Vincent's Hospital with a wound to her upper back

Members of the public detained the alleged attacker, using a milk crate and two chairs to hold him down

Police said the alleged attacker stabbed the woman after attempting to injure multiple people

Timeline (all AEST)

About 2pm - police and emergency services responded to reports of a man walking along York Street in Sydney's CBD armed with a large knife.

2.36pm - police confirmed a 41-year-old woman had been stabbed at the CBD Hotel. The woman was taken to St Vincent's Hospital with a stab wound to her upper back.

Just before 3pm - The Hotel CBD was put in lockdown. A man in a suit and tie tackled the alleged attacker to the ground with a chair, while another grabbed a milk crate and put it over his head. A firefighter was also seen leaving his truck with an axe to help pin the suspect down.

About 3.15pm – Officers from Sydney City police area command found the body of a woman inside a unit on Clarence Street.

3.40pm - More than an hour after the attack bystanders were let out of Hotel CBD.

About 3.45pm - The alleged attacker was wheeled on a stretcher, under police guard, from Day St Police Station to the RPA Hospital.