A critical incident investigation has been launched after a medical centre patient was shot dead by police in Nowra after he allegedly aimed a gun towards officers.

Just before 1pm on Wednesday, January 10, police were called to a medical clinic on Junction Street, after reports a patient pulled out a gun following an "agitated" dispute with his doctor.

There were four people inside the medical centre at the time and three of them managed to escape soon after. The fourth one escaped a short time later which left the 24-year-old gunman alone.

About 2.40pm, the armed man came out of the premises and confronted officers.

He was shot and was immediately treated by officers and paramedics but died at the scene.

NSW Police Assistant Commissioner Peter Cotter said the man was "known to the centre and to medical staff that worked there".

Ass Comm Cotter said the man was known to have mental health struggles and had a "very, very minor criminal record".

The man has not been formally identified yet.

Witnesses to the incident and shooting have been urged to contact Crime Stoppers on 1800 333 000.

"Police believe there were a number of people in the vicinity who may have witnessed the incident," a NSW Police spokesperson said.

The incident will be independently reviewed by the Law Enforcement Conduct Commission and a brief will be prepared for the Coroner.

How many officers fired their weapons, the number of shots, whether the man held a gun licence and police negotiations before the shooting will form part of the investigation.