Police were called on Sunday evening to the city's Inner West, where the alleged gunman was firing from his property at random at passing cars and police.

A large contingent of police swarmed the area and locked down the street, before entering the property above a business and arresting the man. They seized a rifle from the scene.

Office worker Joe Azar said he was working across the road when he heard what he thought were fireworks or rocks being thrown at the windows.

"Some guy's windshield blew up, then the bus stop glass shattered," Azar told The Sydney Morning Herald newspaper.

"The surreal feeling kicked in like, 'Oh, this is what's happening'," he said.

"It was frantic. It all happened so quick, so I couldn't comprehend what was going on," he added.

Police had initially said up to a hundred bullets were fired and 20 people were wounded.

But on Monday, New South Wales Police Acting Superintendent Stephen Parry revised the number of shots to around 50 and the toll of wounded to 16.

"In my 35 years in the police, there's been very few incidents of this nature where somebody is randomly targeting people in the street," he added.

The accused shooter was taken to hospital and treated for minor injuries to the area around his eyes sustained during his arrest.

No charges have been laid against the alleged gunman yet. A police investigation is ongoing.

One man self-presented to hospital with a gunshot wound following the incident, but would likely survive, police said.

The remaining people were treated by ambulance staff for minor injuries, including shattered glass as bullets hit their car windows.

New South Wales Police Commissioner Mal Lanyon on Monday described the shooting as "serious and terrifying".

The gunman's motive was unclear but there were "no known links to terrorism activity or any gang activity", he told local radio station 2GB.

One witness who gave his name as Tadgh told the national broadcaster ABC he had been watching rugby when he first heard the gunshots.

"It was very loud and 'bang, bang, bang' and flash-bangs and sparks and smoke and the whole works. It was something out of a movie, really," he said.

Mass shootings are relatively rare in Australia.

A ban on automatic and semi-automatic weapons has been in place since 1996, when a lone gunman killed 35 people in Port Arthur, Tasmania.

In August, alleged gunman Dezi Freeman went on the run in the bush after being accused of killing two police officers. He remains at large.

And in 2022, six people including two police officers were killed in a shooting near the small Queensland town of Wieambilla.