Sergeant Graham Wehipeihana of Palmerston North police said the soldier in the house had been collected from the city about 1am by a colleague and taken back to the base.
Police had hoped to resolve the situation amicably and did not plan to "go in shooting'', Mr Wehipeihana said.
Teargas was deployed without success.
Between 10am and 2pm police tried to make contact with the man inside the house but to no avail, Mr White said.
The sounds of multiple shots and police dogs barking were heard at the base about 1.15pm.
The shots were in fact gas canisters placed around the soldier's house, Mr White said.
Medics then entered the cordon and dog handlers and police armed offenders squad members left the area.
"You've probably guessed what happened,'' Mr White said to media at the scene.
"There's never a good outcome.''
Police entered the house shortly after 2pm and found the soldier dead.
No shots were fired at or by police, Mr White said.
A defence force spokesman said it was not known whether the gun involved in the incident was a military or civilian weapon.
However, it is believed the weapon was privately owned.
Major Robert Loftus, Chief of Staff of 1st Brigade, said the army was in full support of the police and supported them throughout the ordeal.
"Our thoughts are with the family, friends and colleagues of the soldier concerned at this difficult time.
"The NZ Army will be providing appropriate support to the family.''
The soldier was not deployed overseas during his time with the NZ Army, Major Loftus said.
Mr White said police and defence force staff worked hard to try to resolve the ``tense and difficult situation peacefully''.
"While we are grateful that no-one else has been hurt, we are deeply saddened that it has ended in this way,'' he said.
Defence Minister Jonathan Coleman declined to comment on the incident. However a spokesman from his office described it as an "absolute tragedy''.
Coronial and military inquiries are set to investigate the incident further.
Camp Rd, which borders the base, was closed since about 10am and residents were urged to stay inside their homes.
One resident on nearby Whitmore Rd said it wasn't unusual to hear gunshots at the military camp "so that wouldn't necessarily be cause for alarm''.
The New Zealand Defence Force, Fire Service and St John ambulance all referred inquiries to police.
Defence Minister Jonathan Coleman said he wouldn't comment until later today.
