Images taken by reporters at the scene show a man wearing a black-hooded top and a figure in the background, sitting.
Police have cordoned off the park in Bunbury, Western Australia (WA) and ambulance and firefighters are at the scene.
Officers in bulletproof vests are lying on the ground near the scene, where a large sign has been erected, understood to contain the man's demands, the ABC News reported.
The man may have explosives strapped to his body, the report said.
Police have confirmed a hostage situation but refused to release any further details, it said.
WA Police spokesman Samuel Dinnison was quoted by AAP news agency as saying that police sealed off an area in Bunbury known as Koombana Bay this evening.
"Members of the tactical response group are on the site and they are dealing with the situation," he said.
Dinnison said it's unclear what sparked the hostage situation. The report said the man has erected a handwritten sign that appears to demand the WA Crime Corruption and Crime Commission release a report.