A woman shot dead by police after a stand-off at a Whangarei shop may have been involved in a robbery gone wrong, police say.

Earlier reports from witnesses suggested the the woman may have gone to the inner-city mobile phone shop after a falling-out with a salesman's daughter.

Police spokeswoman Sarah Kennett said initial interviews with witnesses suggested that the woman robbed the shop and some money was taken from the cash register.

The woman, aged in her mid-30s, whom one witness described as "wild-eyed with long dreads", was shot dead by police after holding a man hostage for an hour.

Five other staff fled the store through a rear door.

Police later found an air rifle at the scene.

The woman's body was removed overnight but a cordon remains at the scene.

The drama started soon after 9am when the woman entered Vodafone's First Mobile shop on Reyburn St in central Whangarei and demanded to speak to a staff member.

A source, who asked not to be named, told the Herald he was a friend of the salesman the woman wanted to see.

The man said last night he had been in contact with the salesman's family, who had told him the woman had been "like a bigger sister" to the salesman's daughter, who was aged about 22.

"They were friends about two weeks ago so I don't know what had happened."

The man said the woman went to the store yesterday morning trying to find the daughter, and asked staff to get the salesman so he could bring his daughter to her.

The man believed staff at the store phoned the salesman during the siege to tell him the woman was after him.

Glenn Lambert was in his cafe across the road when he saw two people in the store.

"We could see them through the window," he said.

"She made [the hostage] sit on chairs at the front in the reception area, but most of the staff had run out."

The woman walked out the front door waving the gun around.

"She was a tall girl and had long dreadlocks," Mr Lambert said. "She looked like a P-freak with a rifle."

Police said the woman came out of the store twice, and officers had directly challenged her both times. She was shot as she walked out on the second occasion.

One witness, Arthur McKeshnie, said: "It was as if she was hunting - with the shotgun barrel pointed down - as she came out and looked around."

She was wearing a green bush shirt and was about 175cm tall, he said.

Several witnesses said police yelled at the woman, telling her to drop her gun.

But instead, she pointed the weapon towards them. An armed offenders squad officer fired at her once, hitting her in the chest.

A witness, who saw the woman shot dead by police, said she was "pretty nuts" while another said she appeared "crazed on P", reported NZPA.

Three onlookers told the Herald they saw the woman topple backwards after she was shot.

Colin Probst, who has a photography store opposite the shop, was working at his desk when he heard the armed offenders squad on his roof.

"I heard the ninjas [armed offenders squad] up on the roof but I didn't think too much of it. Then I got a phonecall from the police saying 'shut the doors and stay inside'."

Mr Probst said he heard a shot but thought it was a noise from a nearby tyre fitting store.

When he went into the front of his office for a look he saw the woman lying in front of the Vodafone store.

"I saw the ninjas doing CPR on the body until the paramedics arrived."

Acting police district commander Inspector Chris Scahill said an air rifle was found at the scene, but he could not say if it was loaded or what calibre it was.

The woman's body remained at the scene last night. It is expected to be removed today for a post-mortem examination.

Police were expecting to reveal her name today once her family had been notified.

Mr Scahill said the shooting was a "tragic incident for all that have been involved".

The male officer who shot the woman was "shaken up" and, like his colleagues, was receiving Victim Support counselling.

Mr Scahill said investigations, including one by the Independent Police Conduct Authority, had started. The officer who fired the fatal shot would be "part of those investigations".

Asked if any attempt was made to negotiate with the woman Mr Scahill said "she came out of the shop on two occasions that we are aware of and on both occasions she was directly challenged by police".

He said "a million different factors" went through an officer's mind before a decision was made to use lethal force.

Police Association President Greg O'Connor, who flew to Whangarei yesterday to support all of the officers involved, said police were unable to comment on many aspects of the shooting because of the pending investigations.

But based on the preliminary reports he had heard, he believed the officer's actions were justifiable.

The death toll

The woman who died yesterday was the first female shot and killed by New Zealand police, and the 22nd person to die that way since 1941. Three others have been killed by police this decade:

September 26, 2007: Stephen Bellingham, 37, shot in Christchurch while advancing on an armed police officer with a clawhammer.

August 14, 2004: Haidar Ebbadi Mahdi 37, was shot as he stabbed his wife in a South Auckland house.

April 30, 2000: Steven Wallace, 23, of Waitara, shot after a window-smashing spree in the town.