A spokeswoman for the New South Wales state police said authorities believed three people had been shot.
Australian media reported that one person was killed and two were wounded and taken to hospital, although police could not immediately verify those reports.
"Negotiators and a tactical response team are at the scene and trying to gain access to the building," the police spokeswoman said.
In December 2014, a lone gunman and self-styled sheikh who claimed allegiance to the Islamic State militant group took 17 hostages at a cafe in central Sydney.
The gunman and two hostages were killed in the final minutes of the 16-hour siege.
(Reporting by Jarni Blakkarly; Editing by Byron Kaye and Paul Tait)