Tourists, expats and business owners in Papua New Guinea joined locals in hunkering down for a night of potential violence amid fears of "payback" against the nation's police force after it opened fire on a group of students, wounding several.

"This is going to get worse before it gets better," Greg Anderson, executive director of the Papua New Guinea Chamber of Mines and Petroleum said from Port Moresby, where a protest against the government of Prime Minister Peter O'Neill erupted on Wednesday. "Incidents like this trigger paybacks, which could easily spiral out of control."

Papua New Guinea, off Australia's north coast, remains largely undeveloped and many of its seven million tribal people still adhere to traditional customs. Payback, or retribution for an offence against a clan member, remains widespread.

Andrew Johnston, a documentary maker who has lived in Port Moresby for 28 years, said the town was in gridlock and he had retreated to his home for safety after witnessing the father of one of the severely wounded students rallying a crowd outside the hospital. "He told the crowd of very angry students and other relatives that he was going to cut off the head of Peter O'Neill and hold it up in the air on a plate," said Johnston. "The crowd roared."

Dozens of people were wounded on Wednesday when police opened fire on a student demonstration in the capital and riots spread to other cities across the country, officials and residents said. Virgin Australia turned back a flight from Brisbane to Port Moresby amid reports of the violence and Qantas Airways cancelled one of its flights. Both carriers said they would continue to assess the situation before deciding whether to resume flights on Thursday.

Even at the best of times, Port Moresby is one of the most violent cities in the region, with gangs of "raskols" blamed for a high number of rapes and murders. Australia's Department of Foreign Affairs and Trade (DFAT), which routinely warns of "high levels of serious crime" and a "general atmosphere of lawlessness", updated its travel advice on Wednesday, telling tourists to exercise a high degree of caution in Port Moresby and avoid large crowds. PNG Police Minister Robert Atiyafa warned that "opportunists who are intent on burning buildings, smashing cars and assaulting students who do not want to protest, will be arrested and charged."

Atifya, who did not address the earlier incidents where police opened fire, said police had received reports of university buildings and houses being set on fire and police and private vehicles damaged. However, he said the situation had calmed in the capital.

Residents of Port Moresby reported on social media that the city was in an informal lockdown as darkness fell, with people remaining indoors. Oliver Fowler, director of Cairns-based Adventure Bound Tours, which specializes in tours of the Kokoda Trail, a key WWII site, said the instability could affect his next trip scheduled for August. "We might have to put it off," Fowler said. "It's really going to affect the industry," he said.

However, Cameron James, an Australian who has been leading trekkers on the Kokoda Trail for two years, said he had not observed any increased security at his hotel 11 km (seven miles) from Port Moresbyand planned to go ahead with a trip on Thursday. "I'm completely comfortable, I don't feel any more threat than normal," he said.