A man who held another man hostage for more than 12 hours in WA's south west overnight has been taken into custody by police.

Police said about 6:15pm on Thursday a 52-year-old man allegedly took another man hostage in Bunbury, 170 kilometres south of Perth, and drove him to a park at Koombana Bay.

The ABC understands the man may have had explosives, or some kind of gas canister during the stand-off with armoured vehicles and heavily-armed officers from the Tactical Response Group (TRG).

The hostage was released about 6:45am (AWST), after stripping down to his underwear and walking to police with his arms in the air.

He was later taken from the scene by ambulance.

Minutes later reporters at the scene said the TRG moved in and green laser lights were directed at the man, before the sound of two shots being fired was heard.

Police have been negotiating with the man throughout the night. ( ABC News: Roxanne Taylor )

Commander Alf Fordham confirmed the shots were "less-lethal" rounds.

"At the very [end] it was necessary to use two beanbag rounds to subdue him," he said.

"They were the rounds that were fired and they caused minimal injury and he doesn't require any medical attention."

The man is being questioned by police.

"The offender in this particular situation is in custody," he said.

"He's also fine and not suffering any injuries and will be taken into custody at the Bunbury police station."

The ABC understands the man who sparked the siege had been involved in another siege in Perth and was reported missing from a psychiatric hospital at Graylands more than 12 months ago, but Commander Fordham said he would not be releasing any details.

"I'm not going to go into any of those details at this stage," he said.

"That will be part of the investigation which will now kick off in relation to the events that have occurred."

Commander Fordham also defended the decision to fire at the man after he released the hostage.

"We would only discharge a firearm if we absolutely have to and certainly the Tactical Response Group officers will go for an option that causes a minimal amount of harm and damage and in this case we were able to use beanbag rounds which brought him to the ground and they were able to physically apprehend him."

Commander Fordham said the man who was taken hostage is "fine".

"The gentleman that was held hostage overnight has been reunited with his family and he's receiving medical care, but he's in a very good condition," he said.

During the stand-off a police negotiator used a loudspeaker to communicate with the man who could be heard shouting replies.

A robot on tracks was used to deliver the man a "communication device".

The man had erected a large banner which appeared to be calling on police to release the "Batty Archibald" Corruption and Crime Commission report.

Commander Alf Fordham said there appeared to be no relationship between the man now in custody and the hostage.

"At this stage we don't believe there is a relationship between the pair and we do believe that person was identified randomly, and yes that is of a concern," he said.