University Hospital spokesman Jens Mueller said two people were being treated following the incident.

"One patient has gunshot wounds and is currently undergoing an operation," Mueller said.

Officers were out in force across Halle, a city of 240,000, hunting down more suspects and urging residents to stay at home or indoors.

The railway station in Halle was closed as a precaution.

Police gave no details about the target, or targets, but federal prosecutors who handle cases involving suspected terrorism or national security took over the investigation.

A video clip broadcast by regional public broadcaster MDR showed a man in a helmet and an olive-coloured top getting out of a car and firing four shots from behind the vehicle from a long-barrelled gun.

It wasn't clear what he was shooting at.

Pictures from the scene showed a body lying in the street behind a police cordon.

German news agency dpa reported the body was lying opposite a synagogue.

Wednesday is the Jewish holy day of Yom Kippur, when synagogues are busy.

A witness interviewed on n-tv television said he had been in a kebab shop when a man with a helmet and a military jacket threw something that looked like a grenade, which bounced off the doorframe.

The head of Halle's Jewish community Max Privorotzki told news magazine Der Spiegel there were 70 or 80 people inside the synagogue and security outside when the shooting occurred.

Police said shots were also fired in Landsberg, about 15 kilometres from Halle. It wasn't clear whether the two shootings were related.

Chancellor Angela Merkel's spokesman Steffen Seibert lamented what he called "terrible news from Halle" but government officials said they had no information on the attack.

The European Parliament held a moment of silence at the start of its session on Wednesday to mark the unfolding situation in Halle.

AP