Three people from the same family were shot dead and a man was arrested after a four-hour siege in central Victoria following a "minor neighbourhood dispute", according to police.

Police were called to a home at Mulga Ridge Road just outside Wedderburn, around 8:20pm (AEDT) after being notified of an incident via triple-0.

"When they arrived the police located one person deceased - that person had been shot," Superintendent Graham Kent said.

"They also heard some gunshots nearby and given the circumstances the police decided to withdraw from the scene."

He said while they cordoned off the area, police were contacted by the suspect who indicated he was involved in the incident.

Negotiations with the 63-year-old man continued for about four hours before he surrendered and was arrested about midnight.

Police then searched an adjoining property and found two other bodies.

The victims have been identified as Peter and Mary Lockhart, who were aged in their 70s and Ms Lockhart's son, Greg Holmes, 48.

Peter Lockhart, his wife and her son were killed over a neighbourhood dispute. ( Supplied: Bendigo Advertiser )

Detective Superintendent Peter De Santo said the tragedy appeared to have escalated from a minor neighbourhood dispute.

"This is out of the blue," Det Supt De Santo said.

"One body's been located in a paddock, one body's been located in a driveway and one body's been located at the rear entrance of a house.

"It's a tragic scene and how it's got out of hand from a minor dispute with tragic circumstances ... it's just very hard to fathom how this has all unfolded."

Police said there was some history of minor disputes between those involved but they were never violent.

They also said the firearms used in the incident and others found on the property were all registered.

'Tragic situation in very small community'

He said they were still trying to piece together exactly what happened but the man taken into custody was a local.

Supt Kent said the man's wife, who was in a house on one of the properties at the time, was also assisting police.

Police near the scene of the incident at the rural settlement just outside Wedderburn. ( ABC: Peter Lenaghan )

"This is a tragic situation in a very small community," he said.

"This will have quite an impact. We anticipate there will be some people who [knew] the victims and the offender.

"[We will] put in place a strategy to make sure people understand, as best we can advise them, on what has happened and help them with support and reassurance."

He said it was still unclear what caused the incident.

"There was a dispute of some sort that was taking place in the lead up to what eventually happened," he added.

"This happened over quite a reasonable area, at least two separate properties that are separated by a roadway.

"That added to the complexity of the situation and impacted on our planning."

Mayor says locals will rally around those affected

The Mayor of Loddon Shire, Gavan Holt, told the ABC it would have a massive effect on the local community.

"We hear of tragedies on the news every day... but in a town of this size, local people and unbelievably three local people, will be known by just about everybody," he said.

"It's going to affect everybody.

"We have had tragedies in this community before. And what happens is the community rallies around the family, and the biggest support of all is just moral support.

"Just the people involved knowing that everybody is there for them."