A man has been fatally shot by police officers after he allegedly threatened them with an axe on the NSW Central Coast.

Key points: Police responding to a domestic dispute found a house fire and a man with an axe

Police responding to a domestic dispute found a house fire and a man with an axe After the 45-year-old man allegedly threatened police with the axe, he was shot dead

After the 45-year-old man allegedly threatened police with the axe, he was shot dead An independent review will assess the circumstances of the incident

Police were called to a home in Erina, near Gosford, over a domestic dispute between neighbours just after 10:00pm on Friday.

When officers arrived at the scene, flames were coming from the side of local resident Jasson Pearce's home on The Entrance Road.

Emergency service workers were told the 45-year-old man was also threatening to set a neighbouring house alight and police say he may have thrown liquid at the neighbours' home.

Two officers forced entry into the man's home and found him wielding an axe, police say.

He allegedly threatened police with the axe and the confrontation ended when the man was shot by police.

The police discharged three shots, hitting Mr Pearce twice.

45-year-old Jasson Pearce was acting "erratic" and "nervous" in the past few months.

Mr Pearce was treated at the scene by paramedics but died a short time later.

Police said Mr Pearce had a history of ice use and ongoing disputes with at least two neighbours.

Neighbour Scie Rosemary said Mr Pearce's behaviour had become more "erratic" and "nervous" in the past few months, describing how he "watched" people from his window and door.

"I believe he was intending to set the houses on fire and I do believe he would have done a lot more if the police did not stop him," Ms Rosemary said.

Ms Rosemary also said the neighbours involved in the incident were "traumatised" and had vacated their home.

Another local resident Gavin Reeves said he heard "two loud pops" about 10:30pm from his property near Erina Creek.

"I had the door open with the fly screen closed," he said.

"I heard two to three quick pops, but I didn't think much of it until I read the news.

"Way too close to home."

Police were called to a dispute between neighbours at this home near Gosford. ( ABC News )

Another neighbour, Nicole, was woken by yelling and the sound of emergency vehicles.

"The sirens woke me up and every time I tried to get back to sleep another one would race past," she said.

"I could hear yelling so I decided not to go outside.

"It's just so tragic to hear someone died, I still can't believe it. It's always been a very quiet place."

Friends question police use of lethal force

Friends and colleagues of Mr Pearce, who ran a metal roofing business, have remembered him as a "laughable larrikin".

"He was a great, true blue Aussie bloke," Jake Meise said.

"Always joking and having a laugh.

"If me or any of the boys had a problem he was always there for us with good advice and he wanted the best for everyone."

Mr Meise questioned why officers did not deploy less lethal force against Mr Pearce.

"The police definitely went the wrong way about this," Mr Meise said.

"They could have shot the legs, there was no need to shoot to kill."

The homicide squad will investigate the incident. It will also be subject to an independent review.

A statement from the Police Association of NSW (PANSW) said it was committed to supporting affected police officers involved in the shooting to "ensure necessary welfare needs are met".

"Emergency service workers — including police, paramedics and firefighters — across the state attend unpredictable emergency situations every day of every week," the statement read.