A police officer is dead and three people are critically wounded after a routine drugs raid went wrong in central Napier on Thursday.
A tense armed siege was continuing at a house in Chaucer Road in the suburb of Hospital Hill where the gunman remained holed up early on Friday.
It is believed the 51-year-old man, who had been firing at police with a high-powered rifle throughout Thursday, is well armed and possibly has explosives.
The Defence Force said he is a former territorial soldier with military training.
Police confirmed that Senior Constable Len Snee, 53, was killed. He had been with the police for 33 years. Police have been unable to retrieve his body, despite several attempts.
Community Constable Bruce Miller, 40, dog handler Senior Constable Grant Diver, 50, and a man have undergone surgery at Hawke's Bay Hospital for gunshot wounds. They are in critical condition.
The officers were taking part in what police describe as a "low risk" cannabis raid at the Chaucer Road house just after 9am on Thursday. None were armed. The shootings took place about 30 minutes later.
Eastern district police commander Superintendent Sam Hoyle said late on Thursday night that the gunman has not indicated he was willing to surrender, but police have the situation well in hand.
A Radio New Zealand reporter said a large number of police, members of the Armed Offenders Squad and members from the Special Tactics Group were at the scene.
A woman in the house at the time of the shootings was allowed to leave the property and has spoken to police.
Police Minister Judith Collins will fly to Napier on Friday morning. She said she is very concerned about the situation and would speak to the families of the officers involved.
Napier Mayor Barbara Arnott said the city is in shock and the officers involved are pillars of the community.
The gunman's name has not been confirmed, but details have emerged about his background.
The Defence Force said the man was a member of the Army's Reserve Territorial Force between 1982 and 1988. He was a basic trooper in the armoured corps.
After completing a basic training course, the man was committed to the Army during the six-year period for several weeks each year.
Area cordoned off
Roads around Hospital Hill have been cordoned off and the public is being warned to stay away from the area. Residents have been told to remain in their homes.
Hundreds of other residents have been unable to return home due to the wide police cordon.
Some are staying with family or friends, while others were given food at a Civil Defence welfare centre at Napier Intermediate School in Jull Street. Motel beds were arranged for them.
Earlier, schools in the area were evacuated and children sent home about 2.30pm.
Superintendent Hoyle said support and messages police are receiving from the local community and throughout New Zealand is much appreciated.