Multiple police, fire and ambulance vehicles raced to Sydney's central business district following to reports a man was walking along York St, armed with a knife at about 2pm.
NSW Police said a man is now in custody after allegedly stabbing a woman.
As police made their way to the location, there were multiple reports the man had stabbed someone near the corner of King and Clarence Streets.
Police and NSW Ambulance paramedics located a woman inside a hotel, who had a stab wound.
She has been taken to hospital in a stable condition.
A short time later, members of the public detained the man before police attended and arrested him.
He has since been taken to Day Street Police Station.
Officers from Sydney City Police Area Command and various specialist police are conducting proactive patrols the area, but it is believed there is no further threat to public safety.
A number of crime scenes have been established and a number of road closures are in place, which is believed to have a significant impact on traffic and public transport this afternoon.
Members of the public are urged to avoid the area.
"Please avoid the area," the police said on Twitter.
Tejas Oza told SBS News he just finished a meeting in the area and arrived at the scene as police were arresting a man.
"Police were grabbing him and pushing him on the ground. I heard from people he had a knife in his hand and he was stabbing all these people before police caught him," Mr Oza said.
"I heard this man had basically come out of nowhere and started stabbing people who were having lunch."
He said the crowd was "shaken up, that's for sure".
A video posted by the Seven Network appears to show a man wielding a knife jumping on top of a car at an intersection and screaming "shoot me in the f****g head" before being apprehended by members of the public using chairs and milk crates.
A witness can be heard saying "he just stabbed a chick in broad daylight".
An Uber driver, Leon, reportedly told 2GB that a shirtless man covered in blood and carrying a knife had leapt across the bonnet of his car.
The caller said the man was being chased by police and firefighters. He said the man appeared to be aged 23 to 24 and looked like he was "on something".
Buses have been diverted away from the area.
The Guardian has reported that a man has been arrested and that police operation responding to reports of a man armed with a machete running at members of the public.
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