KEY POINTS:
Four hostages have been released but police remain locked in a marathon standoff with a 41-year-old armed man on a NSW mid-north coast property.
The siege in the coastal hamlet of Stuarts Point, near Kempsey, has dragged on for more than ten hours after the gunman took the four people hostage inside a house following a police car chase early on Wednesday.
The man had driven to the Stuarts Point Road property around 5.30am (AEDT) and barricaded himself inside.
Police say they secured the release of the four hostages between 8.45 and 11.50am (AEDT), but the stalemate with the gunman stretched into the afternoon.
"Negotiators remain at the scene where they are speaking with a 41-year-old man," a police spokesman said.
Police have not released the identities of the hostages, or the gunman, but neighbours have told the Seven Network that a couple and their two children live in the home.
Police said they would not comment further on the siege for fear of jeopardising the operation, which has involved dozens of officers and the force's helicopter.
Neighbours report being awakened by police sirens just after 5.30am, followed by three gunshots.
Jennifer Elliott, who lives about four properties down from the house under siege, said she and her husband were woken by blaring sirens.
"We awoke this morning to the siren and from our bedroom we can see the road and we sat up in bed waiting to see if it was an ambulance or the police," she said.
"Then it stopped, and the next minute we heard three gunshots."
Ms Elliott said the properties along Stuarts Point Rd were all small farms ranging from two to seven acres, growing bananas, avocados, macadamias and mangoes.
She said the family had moved to the area in the past five years, but she did not know them well.
"We don't even know whether the person (the hostage taker) belongs to that house, because he was in a police chase at the time, whether he just thought: 'I'll call in here'," she said.
"We've been out fishing this morning and we've come back through Stuarts Point and talked to quite a few people, and, of course, it is the talk of the town, but there has been no names so we don't know who it is."
Stuarts Point Rd was blocked to traffic because of the police operation, she said.
Richard Livesey, a neighbour living just 100 metres away, said residents were asked to stay inside their home during the early hours of the siege.
"Police walked past early on this morning, at about 6.30am (AEDT), and just said stay in the house and if anyone comes near it to run out the back," he told Network Ten.
Mr Livesey said police involved in the operation were "heavily armed, some in normal police uniform with flak jackets".
- AAP