New details emerge about shocking NSW siege: 'TRAUMATIC'

A man has been arrested after allegedly firing random shots at bystanders and taking a shop employee hostage, south of Wollongong, NSW Police say.

Video of the harrowing Sunday morning incident posted to Facebook shows a masked man dressed in black walking near Windang Road, in Windang, while swinging an assault-style rifle in the air.

Police said the man, who was armed with two guns, took aim at passing cars and pedestrians before barricading himself inside a nearby dive shop.

Two employees were inside the shop at the time, one of which managed to escape without being seen.

The other was allegedly held against his will by the armed man.

Members of the public raised the alarm, prompting officers to close nearby roads and form a perimeter around the area as the siege situation unfolded.

Tactical police stormed the dive shop and began careful negotiations with the 40-year-old, who eventually surrendered and was taken into custody, where he is still being questioned.

New details revealed as investigations continue

Assistant Commissioner Joe Cassar told reporters on Sunday afternoon the man is a registered fire arms holder.

He described it as a "horrible incident" and commended the officers involved for resolving the situation in a "timely matter".

The two dive shop employees are currently speaking with officers.

"I would expect both individuals have gone through a very traumatic experience," Asst. Comm. Cassar said.

Local road closures remain in place as specialist forensic officers examine the crime scene.

Investigations are ongoing, including into what was inside a silver bag and backpack the offender was carrying, police said.

Any witnesses are being urged to come forward.

Witness: Gunman was 'shooting randomly'

A woman who witnessed part of the ordeal said she initially thought the gun shots were a car back-firing.

She told the Illawarra Mercury she was stopped at nearby traffic lights when she suddenly heard a "loud bang".

As she drove to the next set of lights, she saw an armed man cross the road who began "shooting randomly".

"There was an old man coming out of the corner store. He aimed and shot a him but didn't hit him," she told the publication.

"He was still shooting randomly. Just shooting."

She described the armed man as wearing a bullet proof vest, a balaclava, black sunglasses and a black cap.

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