New South Wales (NSW) police confirmed the deaths saying an investigation into the incident has been launched and the victims are yet to be identified, ABC reported.
Police said it appeared an officer had discharged his weapon, responding to a report that one person had been shot.
Witnesses earlier reported seeing two bodies covered with sheets on Charles Street in the city's west.
Local resident Vijay Dantu, who lives opposite the police headquarters, recalls hearing gunshots.
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"I was doing some work at my home and there's a gun shot and I thought it was a tyre puncture," he said.
"Then all of a sudden two more, two more shots came."