Two female hostages have been released from a cafe in Rye on Victoria's Mornington Peninsula and a man has been arrested following an extended siege.
The two females were held at gunpoint at a bakery.
EARLIER: Two people are being held hostage by an gunman at a siege at a Victorian bakery, police say.
Police are negotiating with the hostage taker as the situation continues to unfold in the beachside suburb of Rye, about 80 kilometres south of Melbourne.
Officers were called to the bakery near the corner of Point Nepean Road and Ozone Road shortly before 8am Saturday when the stand-off began.
"It has now come to light that there appears to be two people in the shop with the man reportedly armed with a firearm," Acting Sergeant Julie-Anne Newman said.
"The area has been cordoned off while police negotiate with the man."
She said all three men inside the shop are believed to know each other.
Fairfax Media reports one of the hostages is believed to be the armed man's former partner.
Police said the incident was not thought to be terror related.
"The Special Operations group are on scene with local police and Critical Incident Response Teams," Newman said.
Heavily armed officers have been shown on CCTV approaching the shop as the siege continues.