ORLANDO, Fla., – A gunman killed at least 20 people and injured 42 others in a crowded gay nightclub in Florida early yesterday before police shot him dead in what US authorities described as a "terrorism incident".

A police officer working as a security guard inside the Pulse club exchanged fire with the suspect at about 2am, police officials said.

A hostage situation quickly developed, and three hours later a squad of officers entered the club and shot dead the gunman.

It was unclear when the gunman shot the victims.

"Do we consider this an act of terrorism? Absolutely, we are investigating this from all parties’ perspective as an act of terrorism," said Danny Banks, special agent in charge of the Florida Department of Law Enforcement Danny Banks.

"Whether that is domestic terrorist activity or an international one, that is something we will certainly get to the bottom of."

When asked if the FBI suspected that the gunman may have an extremist leanings, including a possible sympathy with Islamic State, Ronald Hopper, an assistant FBI agent in charge, said: "We do have suggestions that the individual may have leanings toward that particular ideology. But right now we can’t say definitively."

At least one officer was injured in the gunbattle but the decision to storm the club saved at least 30 lives, Orlando Police Chief John Mina told a press conference.

The suspect was carrying an assault-type rifle and a handgun as well as an unidentified "device" on him, Mina said.

Javer Antonetti, 53, told the Orlando Sentinel newspaper that he was near the back of the dance club when he heard gunfire.

"There were so many (shots), at least 40," he said.

"I saw two guys and it was constant, like ’pow, pow, pow,’."

Video footage showed police officers and civilians carrying injured people away from the club and bending over others who were lying on the ground. Dozens of police cruisers, ambulances and other emergency vehicles could be seen in the area.

"It was one after another after another after another," Christopher Hansen told CNN, describing the gunfire inside the club.

"It could have lasted a whole song."

Police said they had carried out a "controlled explosion" at the club hours after the shooting broke out, but did not explain why that was done.

Orlando Regional Medical Centre was placed on lockdown, with only essential workers and relatives of victims allowed access, it said in a Twitter message. The hospital could not be reached immediately for comment.

It was the second deadly shooting at an Orlando night spot in as many nights. Late on Friday a man thought to be a deranged fan fatally shot Christina Grimmie, a rising singing star and a former contestant on "The Voice", while she was signing autographs after a concert in the Florida city. — REUTERS