A gunman thought to be armed with an automatic rifle is holed up inside a business in southwest Sydney, with police negotiators at the scene.

Three people are believed to have been shot, one fatally, at the Ingleburn industrial site.

Police confirmed an operation is underway on Heald Street, near Stennett Road.

Emergency services were called to the site about 10.45am (local time) on Monday.

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Officers from the tactical operation unit have surrounded InLine, a signage business, and are negotiating with the gunman inside.

Two people have been taken to Liverpool Hospital, one has been shot in the leg and the other in the shoulder.

An employee at a nearby business told AAP that one person was dead.

"Police told us not to go near windows," the employee said.

It's unknown if other people are inside the business.

Witnesses from other nearby businesses say they heard five gunshots ring out on Monday morning.

There are reports the incident is domestic related, according to 2GB.

The public has been urged to avoid the area.

-AAP