Mr Hoyle said the officer backed off from the man, warning him several times to show his hands and that police were armed, before the officer fired the single shot.
As the police officer struggled to restrain him, the man allegedly told them he had a grenade and was going to "blow them all up''.
Eastern District police spokeswoman Kris McGehan confirmed the man was not armed.
One local resident, who spoke on condition her name was not used, said an innocent local man who knows the accused became embroiled in the dramatic incident when he stopped his car to give the man a ride, unaware that he was on the run from police.
"It just so happened that it was one of the boys from around here who had no involvement with the police or anything like that who got caught up in the whole thing.''
The driver didn't know what was going on when they were stopped at a police checkpoint and the man allegedly tried to ``do a runner''.
Ms McGehan said the driver was very co-operative with police and would not be facing any charges.
Otane resident Sarah Rogers said the incident was a shock for the small community, which has a population in the hundreds - "it's just a whistle stop''.
"It's a little bit `oh my goodness, what is happening to our sleepy little hollow?'
"It's a very gentle little town and this is just so unexpected. It's a shock really.''
The injured man's name has not been released by police. He will face a number of charges this week.
The Independent Police Complaints Authority has been advised of the shooting and a criminal investigation will be run by senior police officers from outside the Eastern District.
The officers involved in the incident were now off duty.
