Philippine security forces stormed a bus packed with Hong Kong tourists overnight to end a dramatic hostage crisis that unfolded live on global television, leaving eight people and the gunman dead.

The day-long ordeal began when a disgruntled ex-policeman armed with an M-16 assault rifle and dressed in combat pants hijacked the bus in Manila's tourist district in a desperate bid to get his job back.

Police eventually killed the gunman but not before he had shot eight of his hostages dead.

The gunman, identified as 55-year-old former police captain Rolando Mendoza, had stopped the bus, which initially had 25 people on board, across a wide road in Manila's biggest park.

Police surrounded the bus after Mendoza told a radio station that he had killed two people and would kill more. Police initially tried to storm the vehicle but were repelled by automatic weapon fire. They eventually stormed the bus, killing the gunman and then evacuating hostages.

Philippine president Benigno Aquino said eight tourists were confirmed killed, while the Red Cross reported another seven were in hospital with unspecified injuries.

The disgruntled former policeman was sacked over extortion and drug crime allegations and was demanding his job back.

"The hostage-taker was killed. He chose to shoot it out with our men," police Colonel Nelson Yabut told reporters.

"On our first assault, Captain Mendoza was sprawled in the middle of the aisle and shot one of our operatives. On our second assault we killed him."

Police could be seen removing a body from the front of the bus before entering the vehicle.

The end of the 11-hour drama came more than an hour after police commandos had moved in to break windows and surround the bus following a series of shots.

The driver of the bus was seen running to safety after the first flurry of gunshots.

For much of the day the gunman had appeared to be negotiating calmly with police and nine hostages - six Hong Kong residents and three Filipinos, mostly women and children - had been released in stages.

Mendoza had asked for food for those remaining on the bus, which was delivered, and fuel to keep the air-conditioning going during the heat.

One of the survivors hit out at the Philippine authorities, saying they acted too slowly.

"There were so many people on the bus -no one came to our rescue. Why?" the woman, who identified herself as Mrs Leung, said at the scene in comments broadcast on Hong Kong's Cable TV.

"We were in fear for so many hours. I find it really cruel."

Mr Aquino defended the actions of the police, saying authorities had initially believed Mendoza would surrender, suggested by the release of some of the hostages, but the situation later deteriorated.

Mendoza's brother, Gregorio, told a local TV station that his brother was upset by his dismissal from the force.

Hong Kong has now issued its top level "black" travel alert for the Philippines.

A chartered plane has brought family members of the tourists involved from Hong Kong to Manila.

- ABC/wires