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One person was killed and two others were injured when a rental car was driven into a crowd of pedestrians in a central square in Heidelberg, Germany.

Initial reports suggest it was a deliberate attack by the driver, who was hunted down and shot by police in a street in front of terrified witnesses.

Police say the suspect, a 35-year-old German man, was armed with a knife when he ploughed into the pedestrians in front of a bakery at around 4pm local time on Saturday.

Witnesses pointed him out to police as he fled on foot and he was shot during a brief standoff in front of a row of shops and flats and a hotel in the city centre.

(Image: Twitter / @APetchoice) (Image: Twitter / @APetchoice) (Image: Getty) (Image: Getty Images)

Dramatic footage posted on Twitter showed the moment the knife-wielding suspect was shot by police.

Police opened fire after he allegedly ignored orders to drop the weapon, Heidelberg 24 reported.

Around half a dozen officers surrounded the man and pointed their handguns at him as they shouted commands.

After a brief standoff a single gunshot was heard, and officers then rushed towards the injured man on the pavement.

Police said the suspect was seriously injured in the shooting and was in hospital.

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(Image: Getty Images) (Image: Getty Images) (Image: Getty Images) (Image: Twitter @raphael_rauch)

Heavily-armed police officers were called to the scene amid fears it was a terror attack.

Police did not reveal the man's motives or background, but say a terror background was not suspected and he is thought to have acted alone.

Local media reports suggested the man was suffering from mental health issues.

The three victims were rushed to hospital. A 73-year-old German man died about two hours later, police confirmed.

The other two victims were a 32-year-old from Austria and a 29-year-old woman from Bosnia and Herzegovina.

(Image: Twitter / @ PoliceMannheim)

The incident occurred in a pedestrian area in Bismarckplatz in the picturesque city in south-western Germany,with the car coming to a stop near the entrance to the bakery.

Hours later forensics teams in white outfits were seen examining the black car after it was cordoned off.

In December an attacker deliberately drove a lorry into the Christmas market in Berlin, killing 12 people and injuring more than 50.

That attack was claimed by the terror group ISIS.