Police said two officers had been confronted by the axe-wielding man after forcing their way through the front door of the Erina home on Friday night.

Several media outlets have identified the 45-year-old as Jasson Pearce.

Police had been called about a dispute between neighbours but rushed to the door after seeing flames coming from the side of the house.

Assistant Commissioner Max Mitchell said the man was holding the axe in a "hostile position" and "it would appear that the police ... had no other opportunity other than to take the action they did".

One of the senior highway patrol officers who went to the Entrance Road home fired at the man three times.

The man died at the scene after being hit by two of the shots.

Scie Hoschke, who lives on the same street, said the man always seemed to be arguing with people, but the tone of the verbal disputes had changed on Friday night.

She soon heard people yell: "Open the door", immediately before three consecutive gunshots.

"It echoed ... you just know that that is not a car backfiring," she said.

The homicide squad will investigate the incident. The investigation will be subject to independent review.

A coroner will also determine the cause of the man's death and examine the circumstances leading up to it.

Of the shooting, Ms Hoschke said: "It's horrible, but it was necessary.

"I can assure you, if they didn't, he would have hurt people.

"It's sad he had to die, but in a position that it's his life or everybody else's, you've got to make a call."

- AAP