The shooting occurred in Belinda Place, and hours after the incident the man's body was still lying underneath a tarp, while news and police helicopters circled overhead.

Family members of the man had called police to their home, located in the quiet, tree-lined cul-de-sac overlooking Newport Beach, at about 1.50am on Thursday.

Officers attempted to speak with the 39-year-old man before a confrontation took place, and the man allegedly lunged at police with a knife.

The man is believed to have been in an argument with his elderly parents, whom he lived with. They were not harmed in the incident.

Two police discharged their firearms and the man suffered critical injuries. He died at the scene.

Neighbours told reporters that they were woken up by "rapid-fire" gunshots about 2am. "It was the loudest sounds I've ever heard ... very frightening actually," said one lady.

Speaking at a press conference at Dee Why Police Station on Thursday morning, Assistant Commissioner Leanne McCusker said the domestic incident involved the man and his parents, who were unharmed.

"This is a traumatic situation for everybody involved and also for the police involved," she said.

"I have spoken to those police officers this morning and we have all the appropriate welfare support in place for those police following these circumstances."

McCusker said the man was known to police, but declined to confirm if it was a mental health incident.

An investigation is now underway into the circumstances leading to the man's death. The investigation will also be subject to an independent review.

"The deceased male was carrying a knife and the early stages of the investigation indicate that he did lunge at police with that knife," McCusker said.

The man's family is assisting police with their investigation.

"Naturally we are ensuring that appropriate support is in place for those family members," McCusker said.

This is the second fatal shooting by police in the area in recent years, after Jacob Carr, 53, was shot at an Ingleside property on August 17, 2019.

Police had been called to a granny flat on Mona Vale Road, after reports of a domestic violence incident where Carr had allegedly tried to strangle his elderly mother.

Carr allegedly pointed a shotgun at officers, who shot him in the leg.