A man armed with a knife has been shot dead by police at an inner-city unit complex after he allegedly attacked two women and threatened officers.

The man entered the building and began assaulting the women in two units in the well-heeled suburb of Potts Point in Sydney about 10.50am on Tuesday, police said.

Arriving police used a taser to control him but it was ineffective.

The alleged attacker then confronted police before an officer fired a single shot, hitting the man.

He died at the scene, Assistant Commissioner Peter McKenna said.

The man was not immediately identified and the precise location of the shooting in St Neot Avenue has not been revealed.

The women, aged 48 and 56, suffered facial injuries and were taken to hospital.

McKenna would not speculate on why the stun gun was ineffective.

“Tasers have been an effective part of our arsenal,” he said on Tuesday.

“They are a less-lethal option but like anything they’re not always successful.

“[Police] don’t come to work to be confronted by this type of thing or take a life – that’s the last thing we want to do.”

He said the police involved had been responding to the women in distress when the situation escalated quickly.

The scene of a police shooting in Potts Point. Photo: AAP

A crime scene has been set up, with officers using sheets to cover the dead man, who is believed to be aged in his late 30s to early 40s.

The street was cordoned off while a helicopter flew above. Up to 20 riot cars, police vehicles and ambulances descended on the block.

The investigation will be reviewed by the NSW Police Professional Standards Command and overseen by the Law Enforcement Conduct Commission.

-AAP